Downing Street has dismissed a freeze on private sector rents even as Rachel Reeves left the door open to the idea, after the Guardian revealed the chancellor has been considering it as an option to cut the cost of living.

A No 10 spokesperson said on Tuesday freezing private sector rents was “not the approach we will be taking” after sources told the Guardian it was Reeves’s preferred solution for dealing with a spike in housing costs in the wake of the Iran war.

They added: “We have no plans to implement this. Our focus remains on cutting bills and backing renters alongside lower energy prices.”

Reeves, however, failed to rule out the idea when asked about it in the Commons, telling the Labour MP Yuan Yang: “I will do everything in my power and use every lever we have to bear down on the cost of living, including for people in the private rented sector.”

The chancellor was understood to have been considering imposing a one-year rent freeze on private sector landlords as part of a package of measures later this year to help households deal with the fallout from the conflict in the Middle East. The freeze would exclude newly built properties however in an attempt to encourage housebuilding.

The measure would mark a significant reversal for Reeves, who resisted a proposal to include rent controls as part of Labour’s renters’ rights reforms, which come into force on Friday. The news sent shares tumbling in some of the UK’s biggest buy-to-let lenders, such as Paragon and One Savings Bank, but was welcomed by some Labour MPs, who believe the party needs to consider radical ideas to bring down the cost of living.

Economists warn the UK will be hit harder than any other developed country by inflation resulting from the Iran war, which has shut down shipping lanes and sent the price of oil soaring.

Experts say a freeze is likely to bring down rents on properties to which it applies, but push them higher on unregulated properties. They warn it would also reduce the overall supply of rental properties – something that could undermine Labour’s promise to build 1.5m homes during this parliament.

Konstantin Kholodilin, a researcher at the German Institute of Economic Research, said: “Studies show that controlled rents tend to fall on average by 9.4%, but during that period, those which are not controlled in the same area or nearby rise on average 5% faster than they would have done otherwise.”

While renters’ rights groups welcomed the idea, Labour MPs appeared divided on the subject.

Yang, a former economist, asked Reeves in the Commons: “Will the chancellor examine the case for a fixed-term rent freeze in the private rented sector to protect renters like my constituent from rising costs following the invasion of Iran, and to bring inflation down in the wider economy?”

Dan Carden, head of the economically left-wing but socially conservative Blue Labour movement, said on X: “I REALLY welcome @RachelReevesMP considering a temporary rent freeze in response to the ongoing hike in living costs.

“It can and should include piloting a more substantial LABOUR RENT CONTROL system that is long-term, devolved and targeted through local government and local valuation offices.”

The idea prompted a backlash from some MPs who have previously been staunch defenders of the chancellor.

Chris Curtis, head of the Labour Growth Group, said: “Rent controls are a dead end. It’s basic arithmetic, if we want lower costs, we need enough homes for everyone. You can only fix that by building enough bloody houses.”