Consumer confidence in the UK has “collapsed” since the start of the Iran war, according to new research from the British Retail Consortium.
The sharp rise in energy prices caused by the effective closure of the strait of Hormuz and attacks on infrastructure in the region has led to fears of higher inflation and weaker growth across oil-importing countries.
Asked about the state of the UK economy over the next three months, 64% of respondents told a survey they expected it to get worse. Just 11% thought it would get better. The resulting balance of -53% was sharply lower than the -20% reading a month earlier.
The UK adults surveyed by Opinium on behalf of the BRC between 10 and 13 March were also significantly more pessimistic about the outlook for their personal finances, with a negative balance of -17, down from -6 in February.
Helen Dickinson, the chief executive of the BRC, said: “Consumer confidence collapsed as the Middle East conflict raised the prospect of higher inflation in the months ahead.
“Just as the economy was beginning to turn a corner on inflation, the rise in global energy prices is particularly unwelcome for businesses and families.”
Analysts have been hastily downgrading their UK growth forecasts for 2026 amid fears that higher energy prices – which are already evident at petrol pumps – will prompt nervous shoppers to cut back on other spending.
News of the sharp decline in consumer confidence came after official figures showed the inflation rate held steady at 3% in February, before the war upended expectations.
As recently as last month, the Bank of England expected inflation to return to the government’s 2% target in spring, opening the way for more interest rate cuts. However, last week’s monetary policy committee meeting left interest rates on hold – and hinted the next move could be up.
Slower food price inflation was one factor influencing February’s data, and was driven by drops in olive oil, flour and pizza. The Food and Drink Federation (FDF) warned this was likely to be “the calm before the storm”.
Karen Betts, the FDF chief executive, said: “The longer the conflict in the Middle East goes on, the bigger its impact will be on food prices. With food and drink price inflation already running above historical averages, heightened energy, maritime fuel and fertiliser costs will put further pressure on prices.”
Announcing the unchanged 3% inflation figure for February, the Office for National Statistics said higher prices for some products including clothing had been offset by declines elsewhere.
Grant Fitzner, the ONS chief economist, said: “The largest upwards driver was the price of clothing, which rose this month but fell a year ago. This was offset by falls in petrol costs, with prices collected before the start of the conflict in the Middle East and subsequent rise in crude oil prices.”
Petrol prices have increased significantly since the war began. The RAC said at the end of last week that a litre of unleaded was up by 12p, or 9%.
The chancellor, Rachel Reeves, said on Tuesday that the Treasury was preparing contingency plans in case the government decided to step in to protect consumers from rising energy prices later in the year.
She made clear any such rescue package would involve targeted help for needier households, not handouts for all energy customers.
Shevaun Haviland, the director general of the British Chambers of Commerce, will urge member companies on Thursday to continue seeking export opportunities despite the darkening global outlook.
“The global economy is reeling from the Middle East conflict. Trade routes are severely disrupted; energy costs and wider prices are soaring. The impact of this war is profound. But in a more uncertain world the answer is not to retreat. It is to reach out, build more connections, open more doors and trade more, not less,” she is to say.
