UK Consumer Confidence Falls to Lowest Since Autumn 2023 as Iran War Fuels Jitters

UK consumer confidence has fallen for the third month in a row, as people grow more nervous about their personal financial situation and the economy. Data provider GfK's Consumer Confidence Barometer, just released, has fallen by four points to -25 in April, the biggest drop in a year. That's the lowest level since autumn 2023, indicating that the disruption and high energy prices caused by the Iran war is alarming consumers.

When asked about the UK economy, the measure for the country's general economic situation over the last 12 months decreased by eight points to -51. Expectations for the general economic situation over the coming 12 months fell by six points to -43, GfK reports.

The survey shows that "consumers really do have the jitters now", according to Neil Bellamy, consumer insights director at GfK. Bellamy explains: "The anxiety we saw last month has deepened with a four-point fall in April's consumer confidence headline score to -25. It is a year since we last saw a monthly drop of this size, and we have to go back to October 2023 to find the last time consumer confidence was lower. The biggest declines are in perceptions of the UK economy, with an eight-point slide in views on the economic picture over the last 12 months, and a six-point fall in the forward-looking measure to -43, its lowest level since February 2023.

Consumers were arguably resilient about their personal finances in March, but this month's finance measures, looking back a year (-11) and looking forward (-4), have seen significant slides. Everyone is grappling with rapid price rises, especially at the fuel pumps, which are taking a dent out of household budgets, and people know further price hikes are coming. The only measure to go up is our savings index, often an indication that people are concerned about what lies ahead, so those who can are building contingency funds.

Consumer confidence is deteriorating sharply, with fuel prices and threats of more energy price increases acting as constant reminders of inflation. While the Gulf crisis is intensifying pressures, much of the current strain reflects earlier domestic cost increases. How long can all this disruption and pain continue?"

This month’s drop in UK consumer confidence shows that global tensions are adding to consumer doom, warns emeritus professor Joe Nellis, economic adviser at accountancy and advisory firm MHA. Prof Nellis says this latest reading from GfK delivers "an uncomfortable message" – that UK consumer confidence is sliding as households remain deeply uneasy about the outlook.

He explains: "This is not just a routine wobble. It shows a public that is increasingly cautious about their finances and the wider economy. At these levels, pessimism is firmly in control. Many households are not expecting improvement soon. That mindset is shaping behaviour. Confidence matters because it feeds directly into spending decisions. Approximately two-thirds of economic activity in the UK is driven by household spending on a wide range of goods and services – food, energy, travel, leisure, and big-ticket items such as cars and furniture. Small shifts in consumer behaviour can therefore have a disproportionate impact on growth. When uncertainty rises, consumers pull back. Major purchases are delayed, discretionary spending is trimmed, and saving becomes a priority. This quickly feeds through to weaker demand, leaving businesses with slower sales and a more challenging trading environment.

The danger is that this becomes self-sustaining, he adds: "A cautious consumer slows the economy, and a weaker economy in turn undermines confidence still further. The message is clear: until both domestic pressures ease and global risks settle, the UK consumer will remain on the defensive – and the economy will struggle to shift out of low gear."

The share of UK consumers expecting price increases in the year ahead has risen to 85% in April, up from 79% in March, today's consumer confidence barometer from GfK shows. That's the highest since November 2022, Reuters points out.

The FTSE 100 index of blue-chip shares has closed 19.5 points lower at 10,457, a 0.19% drop. That's its lowest level in over two weeks. Precious metals producers were among the fallers, as were Sainsbury's (-3.6%) after it warned that the conflict in the Middle East is squeezing customers' budgets and pushing up its costs.

The key to improving UK consumer confidence could be to resume shipping through the strait of Hormuz, and end the Iran war. A poll of US oil executives has found they expect domestic production to rise as the ongoing conflict upends global supplies, Reuters reports. A poll of executives at US energy companies, conducted by the Dallas Federal Reserve, has found that 43% expect US crude production to rise by up to 250,000 barrels per day this year as a result of the Iran war. About two-thirds of respondents think at least 90% of Gulf production that has been shut in will return to market eventually. And asked when traffic through the Strait of Hormuz will return to normal levels, 20% said by next month, 39% said August, while the remaining respondents said either by November or later.

M&S chair: Rise in food price inflation is 'inevitable'

Archie Norman, the chair of Marks & Spencer, has claimed it is "inevitable" that food price inflation will "seep through" by the autumn as farmers, retailers and food makers struggle with rising cost of energy and fuel. Even if the Iran conflict stops today, the veteran retailer said: "it's too late for September, it's going to come through."

Speaking at the Retail Technology Show in London, Norman said food prices were unlikely to rise by the 10% talked about by the Food and Drink Federation but he predicted that a 1-2% uptick from the current level "would not be surprising at all". Food inflation currently stands at 3.7% according to the Office for National Statistics.

"It's obvious cost increases are going to seep through" Norman said. He said there was "already a bit of a chill" on UK consumers as taxes had gone up and employment was "not that great". Fuel costs would also begin to weigh on household budgets and "households are going to be a few hundred pounds less well off in the year and are going to be sharper on value and more careful where they spend their money," he suggested.

The financial markets are, again, anticipating two increases in UK interest rates this year. The money markets are indicating that UK bank rate will have increased by 58bps (0.5 of a percentage point) by the end of this year, meaning two quarter-point rate rises are fully priced in. Earlier this week the market only expected around 30bps, meaning one quarter-point rise was priced in, with a small possibility of a second.

UK manufacturing output and confidence slumps and costs jump

Sentiment among UK manufacturers has deteriorated sharply, new data from the CBI shows. The CBI's industrial trends reports shows that optimism among factory bosses about both the business situation and export prospects have fallen at their fastest rates since the onset of the COVID-19 pandemic. Its latest Industrial Trends report shows that output and orders both declined in the last quarter, as competitiveness in UK markets deteriorated at a record pace.

The CBI reports: "Manufacturing output fell in the three months to April, and at a faster pace than in the three months to March. The decline was broad-based, but driven by the food, drink & tobacco, chemicals, metal products and mechanical engineering sub-sectors. Worryingly, manufacturers expect the decline in new orders to accelerate, with expectations for the next three months close to the weakest since April 2020 (when the global economy was locked down due to the Covid-19 pandemic)."

The CBI also reports that cost pressures remain elevated – confirming the message from this morning's PMI report. They say: "Growth in average costs per unit of output accelerated in the three months to April, with 71% of manufacturers reporting rising unit costs."