Confidence among consumers in the UK is showing signs of decline as worries about the ongoing conflict involving the US, Israel, and Iran begin to permeate public sentiment. According to a recent report from GfK, a key research firm, the Consumer Confidence Barometer for March indicates a growing apprehension about the UK’s economic outlook over the coming year, with many shoppers becoming increasingly cautious about making significant purchases.
Growing Economic Concerns
Neil Bellamy from GfK highlighted the prevailing mood, stating, “A ripple of fear is spreading.” He pointed out that consumers are beginning to doubt whether the economy can withstand potential repercussions from the Middle Eastern conflict. This sentiment aligns with recent data from the Office for National Statistics (ONS), which revealed a 0.4% decline in retail sales for February. This drop occurred before the conflict escalated, suggesting that consumer hesitance was already taking hold.
Supermarkets reported a decrease in sales compared to January, while the demand for household goods waned, partly attributed to the adverse weather conditions experienced in February. Additionally, non-store retailers, which encompass online and catalogue sales, also noted a dip in sales volumes. Analysts suggest that many shoppers might have advanced their purchases during January sales, leading to an overall decline in February.
While the reduction in retail sales was described as “modest” and fell short of expectations—analysts had predicted a 0.7% drop—the decline in consumer confidence may signal more troubling trends ahead, according to Ashley Webb, an economist at Capital Economics.
Rising Costs and Economic Forecasts
The ongoing conflict has also triggered a surge in energy prices, with Brent crude oil rising by nearly 50% to around $110 per barrel since the onset of hostilities on February 28. This spike is already affecting consumers at the petrol pumps, with the RAC reporting an average price increase of 13% for petrol and 25% for diesel.
Looking beyond immediate fuel costs, there are concerns that household energy bills may rise significantly after the summer months. Although the energy price cap is set to decrease in April, analysts at Cornwall Insight have projected that average annual energy costs for a typical household could increase by approximately £300 starting in July.
Adding to the grim outlook, the Organisation of Economic Co-operation and Development (OECD) recently forecasted that the UK would experience the most substantial economic downturn among G20 nations as a result of the Iran war.
A Shift in Consumer Behavior
The GfK consumer confidence index has dipped two points to -21 this month, with expectations regarding the general economic situation dropping six points to -37. Webb cautioned that this decline could signal the beginning of a more significant downturn and might lead to a slowdown in household spending growth in 2026.
The GfK data suggests that consumers are less inclined to invest in larger items such as furniture or appliances, opting instead to focus on savings as uncertainty looms over the economy.
Susannah Streeter, chief investment strategist at Wealth Club, described the current economic landscape as a “shaky base.” She indicated that the combination of waning consumer confidence, rising costs due to increased freight and energy prices, and faltering spending intentions would likely complicate the retail sector’s prospects in the months ahead.
Why it Matters
The decline in consumer confidence amidst geopolitical tensions and rising costs can have far-reaching implications for the UK economy. As consumers tighten their wallets, businesses may face dwindling sales, which could lead to a slowdown in economic growth. The interconnectedness of global events and local economic realities underscores the fragility of consumer sentiment, making it crucial for both policymakers and businesses to address these emerging challenges.
