U.K. Consumer Sentiment Dampens as Iran War Provokes Inflation Worries — 2nd Update

By Ed Frankl

U.K. consumer sentiment worsened this month as the Iran war prompted renewed fears over price rises and added to concerns about the strength of the British economy.

Consumer confidence fell two points to minus 21 in March, the lowest point since April last year, according to research group GfK's barometer, published Friday with the Nuremberg Institute for Market Decisions. Economists polled last week by The Wall Street Journal expected an even weaker reading of minus 24.

The survey's gauge of consumers' opinions of the economic outlook slumped in particular, while expectations for personal finances in the next 12 months also inched lower.

"With growing concerns over further sharp price rises in the coming months, unless there's a swift resolution to the conflict, or government schemes such as additional support with energy bills come into fruition, this ripple of fear we are seeing in the March data has the danger of turning into a flood," said Neil Bellamy, consumer insights director at GfK.

The decline in purchasing intentions among survey respondents, alongside a rise in savings, also indicates people are holding on to their money and avoiding making major purchases, he added.

The OECD on Thursday said it now expects U.K. inflation in 2026 to average 4% due to the impact of the war, up from a 2.5% projection in December. It also gave the U.K. the largest growth downgrade of the 20 economies for which it provides forecasts, with activity now seen expanding 0.7% this year, down from 1.2%.

With inflation expectations rising, investors have also been ramping up bets that the Bank of England will hike interest rates this year. Before the start of the war, they had instead been anticipating rate cuts.

"People simply do not feel the economy is robust enough to ride out the knock-on effects from the Middle East conflict," Bellamy said.

The fall in sentiment is nevertheless not as strong as the energy-price shock in the months after Russia's full-scale invasion of Ukraine, when confidence tumbled to a record low of minus 49 in September 2022.

But the fall in March could be the start of a more persistent slide.

"Stagflationary concerns caused by the Iran war is probably the start of a bigger fall and suggests real household spending growth will soften in 2026," Capital Economics U.K. economist Ashley Webb said in a note to clients.

In separate data published Friday, the Office for National Statistics said retail sales volumes declined 0.4% on month in February, hurt by wet weather. However, some retailers suggested that consumers might have brought forward spending to January, when sales climbed 2.0%, to take advantage of post-Christmas discounting in the period.

Deteriorating consumer confidence suggests real retail spending will weaken in the coming months, Webb said. With rebounding inflation, easing wage growth and unemployment also creeping higher, consumer spending growth is set to slow from 1.0% in 2025 to just 0.1% this year, he said.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

March 27, 2026 04:18 ET (08:18 GMT)