UK sentiment drops to 33-month low as household concerns rise

British consumer morale dropped sharply last month, hitting its lowest level since mid-2023, according to two surveys released on Monday.

The decline reflects growing concerns over inflation and geopolitical tensions in the Middle East.

Data from S&P Global showed its consumer sentiment index fell to 42.3 from 44.1, marking a 33-month low.

Meanwhile, a separate quarterly gauge by Deloitte also showed confidence sinking to its lowest level since the third quarter of 2023.

Both surveys highlighted worsening sentiment around household finances and job security, signalling increased pressure on consumers.

Inflation concerns and energy shock add pressure

Britain’s inflation rate, already the highest among the Group of Seven advanced economies, is expected to rise further.

Investors believe the country is particularly exposed to the surge in energy prices following US-Israeli attacks on Iran that began at the end of February.

The geopolitical tensions have added to existing economic challenges, increasing uncertainty for households already grappling with cost-of-living pressures.

Concerns escalated further on Monday as uncertainty around the ceasefire between the United States and Iran deepened.

The US said it had seized an Iranian cargo ship that attempted to bypass its blockade, while Iran vowed retaliation.

Household finances and job security weigh on sentiment

Céline Fenech, consumer insight lead at Deloitte UK, said consumers were already under strain before the escalation in geopolitical tensions.

"Many were already facing a squeeze on their household budgets at the start of the year with the slowing ‌of wage growth and a cooling jobs market," she said.

Housing market shows signs of weakening

The housing market is also beginning to show signs of strain.

Data from Rightmove indicated that asking prices for British homes rose by 0.8% month-on-month in April.

However, the increase was smaller than usual for this time of year, when activity typically picks up.

“With the prospect of another increase in the price of essentials, consumer confidence continues to be tested and is trending downwards to levels last seen four years ago. For consumer sentiment and spending to improve, households will want to see a more certain outlook for the economy,” Fenech said, as mentioned in the Deloitte report.

Rate expectations add to uncertainty

According to S&P Global, more than half of households expect the Bank of England to raise interest rates.

However, Bank of England Governor Andrew Bailey had earlier suggested that investors may be overestimating the likelihood of rate hikes.

The divergence between market expectations and central bank guidance is adding another layer of uncertainty for consumers already navigating rising costs and economic instability.

Overall, the combination of geopolitical risks, inflation pressures, and weakening domestic indicators appears to be weighing heavily on UK consumer confidence, with little immediate relief in sight.