Household sentiment slumps in ‘first concrete indicators battle in Middle East is damaging UK financial system’

Morale among British households has tumbled as war in the Middle East fuels fears over rising prices, higher interest rates and job prospects.

In a bleak report, S&P Global said its overall consumer sentiment index for the UK has fallen to a 14-month low as families fretted about their finances.

Households are now more downbeat about their own financial prospects than at any time since December 2023 – and are slamming the brakes on spending as a result.

The findings came as war in the Middle East pushes up prices at the petrol pumps and threatens to drive up household energy bills.

Nearly half of households, or 45 per cent, now expect the Bank of England’s next interest rate move to be up while just 21 per cent anticipate a cut.

Motorists queue for fuel as soaring petrol prices hit household confidence

The prospect of a new inflation shock – triggered by soaring oil and gas prices following US and Israeli airstrikes on Iran – have shattered hopes of a rate cut this week.

Maryam Baluch, an economist at S&P Global, said: ‘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.

‘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.’

The government is now planning a support package for households who have faced a sharp rise in the cost of heating oil.

Ministers are also under pressure to scrap a planned 5p a litre rise in fuel duty.

This is a headache for Rachel Reeves as the prospect of higher inflation, higher interest rates and help for households with soaring energy bills drives up government borrowing costs.

The yield on ten-year gilts – a key measure of how much investors charge the UK to lend it money – have jumped from 4.23 per cent to over 4.8 per cent since war broke out in the Middle East.

Experts warned the outlook for the UK economy – which failed to grow at all in January, before the impact of the war with Iran was felt – was bleak.

Baluch said: ‘The war has also caused households to view a further cut in interest rates by the Bank of England as increasingly unlikely in the near‑term, further encouraging households to scrutinise their outgoings more closely in an effort to limit their financial burden.

‘The worsening of consumer confidence in March, as well as the deterioration in growth of workplace activity, represents a further drag on an already struggling UK economy.’