UK Consumer Confidence Plummets Amid Iran War's 'Twin Threat' Fallout
Consumer confidence in the UK has sharply declined, driven by mounting concerns over the "twin threat" of escalating prices and sluggish economic growth in the aftermath of the Iran war. The latest data from the GfK consumer confidence index reveals a significant downturn, highlighting widespread anxiety among households.
Key Findings from the GfK Index
The GfK consumer confidence index, a long-standing survey in Britain, dropped two points to minus-21, indicating that consumers anticipate further price increases. This level matches that of April last year, when inflation was persistently high and households faced a surge in costs for energy, internet, and other essential bills.
Neil Bellamy, consumer insights director at GfK, commented, "A ripple of fear is spreading, as seen in the six-point fall in perceptions of the general economic situation over the next 12 months and the four-point drop in the major purchase index."
Impact of the Iran War on Prices and Inflation
The conflict in Iran has led to a spike in oil and gas prices, threatening to drive up energy bills once the price cap expires this summer. Additionally, it has increased production, transport, and food costs. As prices rise, inflation is making a comeback, with swap rates—expectations of future interest rate hikes—climbing. This has resulted in higher mortgage deals, imposing new financial pressures on UK households from multiple angles.
The Bank of England now forecasts inflation to approach 3.5 per cent by mid-2026, revising its earlier estimate that the UK would achieve the 2 per cent target by April.
Detailed Index Declines and Consumer Behavior
Expectations for the general economy over the next 12 months have slumped six points to minus 37 on GfK's index, which is eight points worse than the same period last year. The forecast for personal finances over the next year also fell, albeit by just one point to one, matching last March's score.
Meanwhile, the major purchase index, which gauges confidence in buying big-ticket items, fell four points to minus 18, one point lower than last year. In a sign that consumers are adopting a cautious "wait-and-see" approach due to the conflict's knock-on effects, the savings index increased six points to 27.
Bellamy added, "People simply do not feel the economy is robust enough to ride out the knock-on effects from the Middle East conflict. Moreover, the decline in purchasing intentions, coupled with a six-point rise in the savings index, indicates people are holding on to their money and avoiding major purchases while awaiting the medium-term impact."
Future Concerns and Economic Outlook
Bellamy outlined two major concerns: the need for a careful and balanced response to volatility since late February, and the risk of further sharp price rises unless the conflict resolves quickly or government support schemes, such as additional energy bill assistance, are implemented. He warned, "This ripple of fear we are seeing in the March data has the danger of turning into a flood."
Recent retail sales data showed a minor boost, with volumes slipping only 0.4 per cent month-on-month in February, a smaller decline than expected. However, Matt Britzman, senior equity analyst at Hargreaves Lansdown, emphasized that the forward-looking consumer confidence indicator is more telling. He noted, "Fresh retail sales data showed volumes slipped 0.4 per cent month‑on‑month in February, a smaller fall than expected, meaning activity has, for now at least, held on to much of its early‑year momentum. But weakening consumer confidence is likely the more telling signal, with the GfK reading dropping to an 11‑month low in March as households grapple with the twin threat of higher inflation and softer growth prospects."
This report includes additional information from PA sources, underscoring the broader economic challenges facing the UK in the wake of the Iran war.
