UK consumers have initiated a significant shift in their spending habits, cutting back on travel for the first time in five years amidst growing concerns over the rising cost of living and the ongoing conflict in the Middle East. While overall consumer card spending saw a modest 0.9% year-on-year increase in March, according to Barclays data, travel expenditure experienced a 3.3% decline, marking the first such drop recorded by the lender since March 2021. This reduction was evident across various travel sectors, with spending at travel agents falling by 4.6% annually, airlines by 4.1%, and public transport by 2.9%, as individuals postponed international trips or opted for domestic holidays.

Conversely, spending on hotels, resorts, and other accommodation within the UK saw a 1.2% rise, buoyed by a preference for local outings and increased domestic bookings during the Easter break. The broader economic anxieties stemming from the Middle East conflict, which commenced in late February with US-Israeli attacks on Iran, have prompted one in seven adults to delay major purchases or build up savings in anticipation of higher energy costs. Despite a 7% reduction in gas and electricity bills from April 1 due to a lowered energy price cap, forecasts suggest a substantial 18% jump in July, driven by increased wholesale costs.

Essential spending, including food and petrol, rose by 0.5% in March, primarily led by a 1.6% increase in fuel spending—the first rise since February 2023—as surging oil prices impacted pump costs. Growth in "non-essential" discretionary spending slowed to 1.1%, though consumers remained resilient in categories such as clothing (+3.6% year-on-year) and entertainment (+3.5%), with cinema spending notably boosted by successful box office releases. Despite 67% of adults expressing confidence in their household finances, and 71% in their ability to live within their means, there is a growing pessimism regarding the general economic outlook, with only 21% confident about the UK and global economies.

Beyond consumer behavior, the Middle East conflict is significantly impacting global economic confidence. HSBC chief executive Georges Elhedery expressed deep concern, stating that the uncertainties have begun to weigh on general confidence globally, extending beyond the Middle East to affect prices of goods, oil, refined products, fertilisers, and metals. The global oil market has been particularly volatile; after rising above $100 a barrel, Brent crude dipped to around $98.5, even with a US blockade on Iran’s ports. This volatility is creating an "increasingly uncertain outlook" for businesses, with companies like Imperial Brands flagging a challenging geopolitical environment and recruitment firm PageGroup noting "tough markets" in the UK, Europe, the Middle East, and Asia, with salaries below previous years.

Energy companies, however, are leveraging this market turbulence. BP anticipates "exceptional" earnings from its oil trading desk in the first quarter of its financial year, benefiting from strengthened refining margins and the choppy energy markets triggered by the conflict and Tehran’s effective closure of the Strait of Hormuz shipping route. Similarly, its UK rival Shell expects "significantly higher" oil trading profits. Analysts have upgraded profit forecasts for these companies, with Brent crude averaging around $78 a barrel during the January-to-March quarter, rising sharply from $61 in January and at one point hitting $119.50. While JP Morgan Chase expects oil prices to remain above $100 a barrel in the second quarter, Goldman Sachs has revised its forecast down slightly.

The International Energy Agency (IEA) has revised its global oil demand forecasts downward for the year, anticipating an 80,000 barrels a day decline—the first annual decrease since the 2020 Covid pandemic—due to the conflict. The IEA also reported a plummet in global oil supply by over 10 million barrels a day in March, attributing this "largest disruption in history" to continued attacks on energy infrastructure and restrictions to tanker movements through the Strait of Hormuz. This disruption is causing broader supply chain challenges; garment makers using petroleum-derived fabrics face rising costs, with sportswear company Castore reporting 10-15% increases that may be passed on to consumers if the conflict persists, compounded by volatility in raw material prices and difficulties in shipping due to reduced flights and stranded vessels.

Virgin Atlantic's CEO highlighted that jet fuel prices are more than double pre-war levels, suggesting that some disruption to global energy prices "will be here to stay." In response to these global economic headwinds, Chancellor Rachel Reeves called for coordinated international economic action at the IMF and World Bank spring meetings, emphasizing the Iran conflict as a critical juncture for addressing global crisis and instability. Meanwhile, the Bank of England faces the challenge of balancing a softening economy with existing inflation, with expert modeling suggesting that holding interest rates might be the best approach to contain inflation without unduly squeezing consumers.