Amid an already challenging trading environment, the EY UK Economic Outlook has predicted that consumer spending is set to slow further in response to ongoing conflict in the Middle East.

According to EY, the conflict is expected to weigh on the UK economy, particularly affecting retail and hospitality businesses. 

The company explained that, prior to the outbreak of conflict in the region, UK GDP was forecast to grow by 1.3% in 2026. This prediction has now fallen to 0.8% due to disruptions in global energy supply. 

Consumer spending is likewise expected to decline from the previously forecast 0.9% growth to just 0.3%. However, EY said this would likely be followed by a recovery, with consumer spending growth projected at 1.5% in 2027 and 2.2% in 2028. 

As a caveat, EY noted that these predictions are based on the Strait of Hormuz waterway reopening by the end of Q2 2026. Further escalation could push UK GDP growth down to as low as 0.3% this year. 

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.” 

On changing financial habits, he added: “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.”