Middle East conflict hits UK consumer sentiment as rate-cut predictions rise

(Sharecast News) - Consumer confidence levels in the UK has dropped to a 14-month low as household sentiment is hammered by the outbreak of war in the Middle East amid the prospect of heightened inflationary pressures. The S&P Global UK Consumer Sentiment Index fell to 44.1 in March from 44.8 in February, with households increasingly pessimistic about their financial wellbeing.

This was the lowest reading since January 2025, while household confidence in their financial outlook for the year ahead dropped to its gloomiest since the end of 2023.

The household finance index fell to 41.5 from 43.7, while the spending sentiment index dropped to 36.6 from 37.4 and the labour market sentiment slipped to 51.1 from 52.0.

Notably, UK consumers have become more hawkish regarding their policy expectations since the war between the US and Iran began at the end of February, with 45% of households now expecting the Bank of England to raise interest rates as its next move, compared with 21% who predicted a cut. The net balance, +24%, was the joint-highest level since October 2023.

"A marked deterioration of consumer sentiment in March means we are seeing the first concrete signs of the war in the Middle East damaging the UK economy. Households are again grappling with increasing energy and fuel prices, exacerbating already strained finances," said Maryam Baluch, economist at S&P Global Market Intelligence.

"Households are consequently now the most downbeat about their financial prospects since December 2023, reporting an increased reluctance to spend and borrow while growing more worried about job security."