Worries over a renewed spike in inflation are driving “a ripple of fear among consumers”, warned a closely monitored measure of shopper sentiment in the UK this morning.
It follows the dire update from the British Retail Consortium yesterday that consumer confidence had “collapsed” as the war in the Middle East raised the prospect of higher inflation in the coming months.
Today, the long-running GfK consumer confidence index showed a two-point dip in the headline rate to –21 in March, while the perception of the health of the general economic situation over the coming 12 months fell six points to –37.
The major purchase index also sank by four points to –18 as consumers prepared to tighten their purse strings once more.
“A ripple of fear is spreading,” said Neil Bellamy, consumer insights director at GfK, an NIQ company.
“People simply do not feel the economy is robust enough to ride out the knock-on effects from the Middle East conflict. Moreover, the decline in purchasing intentions, coupled with a six-point rise in the savings index, indicates people are holding on to their money and avoiding making major purchases while they wait to see what the medium-term impact of the conflict will be.
“There are two major concerns for the future. First, the UK will need to adopt a careful and balanced response to the wider volatility we have seen since the end of February. Second, 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.”
Food inflation eased in February, falling 0.3 points to 3.3%, the lowest rate for 11 months, according to official government figures released on Wednesday. The headline rate of UK inflation also held steady last month at 3%.
FDF CEO Karen Betts was concerned this was the calm before the storm. “The longer the conflict in the Middle East goes on, the bigger its impact will be on food prices,” she said. “With food and drink price inflation already running above historical averages, heightened energy, maritime fuel and fertiliser costs will put further pressure on prices.”
The IGD also predicted the Middle East conflict could push food inflation to as high as 8%.
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