The escalating US-Israel conflict with Iran is sending shockwaves through the UK economy, significantly dampening consumer confidence as shoppers brace for the financial fallout.
According to the latest Consumer Confidence Barometer from research firm GfK, March saw a distinct decline in optimism regarding the UK's financial outlook for the coming year. Fearing economic instability, Britons are showing a marked preference for bolstering their savings accounts rather than splurging on big-ticket items like electronics or furniture.
"A ripple of fear is spreading," noted Neil Bellamy of GfK. "People simply do not feel the economy is robust enough to ride out the knock-on effects from the Middle East conflict."
This growing anxiety follows a sluggish February for retailers, which occurred just before the geopolitical crisis erupted. The Office for National Statistics (ONS) recorded a 0.4% slide in retail sales. Unfavorable wet weather deterred shoppers from purchasing household goods, while supermarkets and online storefronts also experienced a dip in demand, partly because consumers had already exhausted their budgets during the post-holiday January sales.
While the February retail contraction was smaller than analysts initially feared, economists are still raising red flags. Ashley Webb, a UK economist at Capital Economics, cautioned that the current slump in consumer sentiment is "a sign of things to come." The GfK index recently fell two points to minus 21, and expectations for the broader economic landscape dropped six points to minus 37. Webb predicts this is the beginning of a larger decline that will soften household spending well into 2026.
A primary driver of this widespread pessimism is the skyrocketing cost of energy. Following the outbreak of the war on February 28, benchmark Brent crude oil surged by roughly 50%, reaching $110 per barrel. Motorists are already feeling the pinch at the pumps; RAC data shows average petrol prices have jumped 13%, while diesel has soared by a staggering 25%.
Household utility bills are also looming as a major concern. Despite a scheduled drop in the domestic energy price cap this April, energy consultancy Cornwall Insight projects that annual utility costs for a typical home could spike by an additional £300 starting in July.
The broader macroeconomic picture compounds these domestic fears. The Organisation for Economic Co-operation and Development (OECD) recently projected that out of all the G20 nations, the UK's economic growth will suffer the sharpest blow as a direct result of the Middle East conflict.
Susannah Streeter, chief investment strategist at Wealth Club, summarized the retail landscape as resting on a "shaky base." With freight and energy costs soaring and shoppers increasingly hesitant to open their wallets, Streeter warned that retailers face an uphill struggle in the months ahead.