Iran War Sinks UK Consumer Confidence, Inflation Fears Rise

GfK's barometer, published with the Nuremberg Institute for Market Decisions, reported this decline, marking the lowest point since April last year, though it was less severe than The Wall Street Journal economists' forecast of minus 24. The survey indicated a particular slump in consumers' opinions of the economic outlook and a slight decrease in expectations for personal finances over the next 12 months.

Neil Bellamy, consumer insights director at GfK, stated that growing concerns over sharp price rises could escalate into a "flood" of fear without a swift resolution to the conflict or additional government support like energy bill schemes. Bellamy also noted a decline in purchasing intentions and an increase in savings, indicating consumers are conserving funds.

The OECD, on Thursday, revised its 2026 UK inflation projection to 4% from 2.5% due to the war's impact and downgraded the UK's growth forecast to 0.7% from 1.2%, representing the largest downgrade among 20 economies. Consequently, investors now anticipate Bank of England interest rate hikes this year, a reversal from prior expectations of rate cuts.

Ashley Webb, a Capital Economics UK economist, believes this fall in sentiment is the beginning of a larger decline, suggesting real household spending growth will soften in 2026. Separate data from the Office for National Statistics showed retail sales volumes decreased 0.4% month-on-month in February, partly due to weather, though some retailers attributed it to consumers bringing forward spending to January's post-Christmas sales.

Webb projects consumer spending growth will slow from 1.0% in 2025 to just 0.1% this year, exacerbated by rebounding inflation, easing wage growth, and rising unemployment.