As always, there are two sides to the coin.
Whitshadw makes some great points, and shows the other side (not to raid the Italians home fleet UIK1). I have also seen what Faramir describes what I assume is the UK Med fleet flees to the Red Sea, merges with the Indian fleet, then returns (this gives the axis too much leeway though IMO). Preserving the UK Med fleet, but keeping it in the Med so the Italians can’t get the Med NO’s will still cause damage to the Italians (economically). Egypt and Gibraltar are safe (for now), the axis still need to deal with the French ships, and if the Italians make an early play away from their home port it could leave their ships vulnerable (no air cover).
I have seen what Whitshadw describes when there is a real Sea Lion threat, so why not as an over all strat for the UK? It keeps the Royal Navy in tact, at a very good position, and if nothing else is a distraction for the Axis (could actually abort Sea Lion). Most would agree that in the first few rounds as the UK you just need to survive, preserve what units you can, fortify your most strategic territories and wait for help. You should go offensive when you have a clear advantage, but be watchful of possible traps and counter attacks. Taranto could be viewed as one of those traps.
We all know that a Taranto Raid (UK1) will cripple the Italian navy at the expense of the UK Med navy (axis counter attack). IMO the UK can recover a bit easier then Italy, because they can bring over the Indian navy as a replacement, maybe adding to it from S Africa. This gives the Italians a couple turns to rebound though, and the axis should be able to clear the Med of allied ships and keep it that way for a couple tuns (Italy’s NO).
On a side note, just wondering if they do Taranto…… as the axis do you lift 3 planes in defense of the Italian fleet (assuming you have at least 1 German ftr there), or do you bluff the possibility of scramble to force them to overload the attack so you can trap the UK Med fleet for the counter attack (which also removes some London defense)? Both ways can create havoc for either side. Sending up the scramble probably won’t save the Italian BB, and will cost the Axis some ftrs, but could weaken the RAF and trap a weaker UK Med fleet for the counter attack (they will have some choices to make). Sending up the planes will also cost the axis some very valuable air units, but if they don’t scramble the UK Med fleet left in SZ97 could be too much for Italy to handle on Ita1, forcing the Germans to hit it taking a toll on the Luftwaffe, not to mention the UK will be able to convoy the Italians if not taken out on their turn.
As the axis I would scramble at least 2 ftrs (probably all 3). There is a slim chance the UK rolls bad, and you save the Italian BB. It also makes the counter attack easier (although you have fewer units to do so).