Middle East Conflict to Slow UK Consumer Spending Growth From 0.9% to 0.3% Survey Reveals

The conflict in the Middle East is forecast to weigh on the UK economy and exacerbate longstanding challenges for retail and hospitality businesses, according to the new EY UK Economic Outlook.

EY analysis shows that, prior to the outbreak of the conflict in the Middle East, UK GDP was on track to grow by 1.3% in 2026.

However, the disruption to global energy supply and subsequent effect on prices and inflation are now predicted to weigh on the UK’s economic momentum, slowing GDP growth to 0.8% this year.

Consumer spending is predicted to grow by 0.3% in 2026, compared to the 0.9% growth the UK had been on track to achieve prior to the Middle East conflict. This is expected to be followed by 1.5% growth in consumer spending in 2027 and 2.2% in 2028.

GDP growth is forecast to rise to 1.2% in 2027, although this remains below the 1.4% that the UK was on track to achieve prior to the conflict.

The Outlook’s modelling is based on the Strait of Hormuz reopening by the end of Q2 2026, albeit with subdued levels of tanker traffic and a continued risk of disruption. However, if there is an escalation in the conflict and the strait remains closed until the end of 2026, the Outlook’s model suggests that UK GDP growth could fall to 0.3% this year.

Increases to wholesale energy prices are anticipated to fuel a rise in energy bills, driving UK inflation above 4% by the end of 2026. The Bank of England is now expected to hold the Bank Rate at 3.75% throughout the year, in contrast to the two reductions priced in by the market prior to the conflict.

EY now forecasts that the next reduction in interest rates will occur in April and July 2027, with the Bank of England expected to implement two cuts of 25 basis points each before leaving the Bank Rate at 3.25% for the remainder of 2027.

Unemployment is forecast to increase slightly to 5.8% by the end of 2026 as weaker growth impacts hiring levels, before falling back to 5.5% within a year and reaching 5.2% in 2028.

Peter Arnold, EY UK Chief Economist, said: “Despite a relatively strong start to 2026, the conflict in the Middle East means the UK economy is once again being shaped by external shocks and on track for another year of subdued growth. We expect the first quarter of this year to show GDP on a fairly promising trajectory, before flatlining in the second quarter and gradually recovering into 2027 as the global markets adjust.

“Cautious levels of consumer spending seen since the pandemic also now appear more structural than temporary, with all income groups reallocating household spending towards savings and essentials and away from discretionary spending. This is a concerning trend for consumer-facing sectors and will likely be exacerbated by ongoing global uncertainty and the predicted rise in inflation.”