Iran War Triggers 'Ripple of Fear' in UK Consumer Confidence
A closely-watched measure of consumer confidence has revealed a significant spike in economic anxiety among UK households, with many adjusting their spending habits due to the ongoing Middle East conflict. The monthly reading from data specialist GfK shows a "ripple of fear" taking hold as global energy prices rise, putting additional pressure on already strained budgets.
Sharp Decline in Economic Confidence
The survey recorded a six percentage point decline in confidence about the UK economy over the next twelve months. This drop comes amid warnings that the war will deliver price hikes across a growing number of goods and services in the coming months. The major purchase index fell by four points, indicating consumers are increasingly hesitant to commit to significant spending.
Neil Bellamy, consumer insights director at GfK, explained the mood: "A ripple of fear is spreading as is evident from the six-point fall in perceptions of the general economic situation over the next 12 months. People simply do not feel the economy is robust enough to ride out the knock-on effects from the Middle East conflict."
Energy Price Surges and Household Impact
Market data from Friday showed Brent crude oil remaining above $100 per barrel at $100.70, representing an increase of almost 40% for the month to date. UK gas costs have soared by more than 75%. These dramatic increases follow US-Israeli strikes on Iran that triggered immediate fuel price shocks.
Forecasts suggest the energy price cap will rise from July when it can first reflect the elevated oil and natural gas prices prompted by the conflict. Recent projections indicate the price cap may increase by more than £300 on an average annual basis from July, with that sum likely to grow the longer hostilities continue in the Middle East.
Changing Spending Patterns and Savings Behavior
The survey revealed a six-point rise in the savings index, indicating people are holding onto their money and avoiding major purchases while they wait to see the medium-term impact of the conflict. This shift represents a significant change in household financial behavior as consumers brace for potential economic turbulence.
Food prices are expected to soon strongly reflect the hike in essential bills, following the initial fuel price shock. The decline in purchasing intentions, coupled with increased savings behavior, suggests widespread economic caution among UK consumers.
Broader Economic Context and Government Response
The UK has faced a persistent cost of living problem since 2022 when Russia's invasion of Ukraine sparked an intense energy-led inflation crisis. While the government has made tackling the resulting decline in living standards its top priority, the scale of the challenge remains substantial.
A new government measure found that 13.4 million people, including just over four million children, were living in poverty in the UK during 2024/5. Chancellor Rachel Reeves told MPs this week that help for energy bills will be limited to those who can least afford them, citing constrained public finances that have been hurt by support during the COVID pandemic and subsequent Ukraine war bailout.
The OECD has forecast UK inflation at 4% by year's end but does not believe the Bank of England will need to respond to the crisis by raising interest rates. However, the combination of geopolitical uncertainty and energy market volatility continues to create economic headwinds for UK households already navigating financial pressures.
