Economists warn that UK inflation is on track to rise sharply due to the escalating Iran war, potentially forcing the Bank of England to increase interest rates. Consumer confidence has plummeted to its lowest level since October 2023, as businesses face mounting cost pressures and prepare to raise prices, according to multiple surveys.
Consumer Confidence Slumps
GfK's consumer confidence index fell by four points to -25 in April, the lowest since October 2023. Neil Bellamy, consumer insights director at GfK, noted that soaring fuel prices and the prospect of higher energy costs are constant reminders of the inflationary shock from the war. "Consumers really do have the jitters now," he said.
Business Surveys Highlight Rising Costs
The S&P Global purchasing managers' index revealed that UK service sector firms experienced the biggest jump in costs since 1996 between March and April. Raw material prices also rose rapidly in manufacturing. A separate CBI survey showed sentiment among industrial firms plunged at the fastest rate since the onset of the Covid pandemic.
The Office for National Statistics reported that over a quarter of firms expect to increase prices next month, the highest since January 2023. More than a third cited energy costs as a reason, and 40% reported a rise in the cost of goods or services purchased in March compared with February.
Interest Rate Hike Possible
Economists predict that UK inflation is set to rise sharply due to the Iran war, which could compel the Bank of England to raise interest rates. Financial markets anticipate at least one increase in borrowing costs this year, though Threadneedle Street is expected to keep rates on hold at its next policy meeting amid heightened uncertainty.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "Prices are rising not just because of surging energy costs, but also due to increases in charges levied for a wide variety of goods and services, with price hikes often stoked by supply concerns."
Despite the gloom, overall activity across services and manufacturing fared better than expected, reaching a balance of 52 in April, up from 50.3 in March. Economists had expected a decline to 49.9. The survey attributed the rise partly to customers rushing to secure purchases before feared price increases and goods shortages linked to the war.
