Is winter coming for the UK consumer?

The UK consumer is likely to face weaker discretionary spending over the coming winter as energy, food, tax and interest-rate pressures converge.

• Petrol prices were nearly 30% higher in the week before publication than in the final week of February, adding a cumulative 65bp to headline CPI since March.
• Ofgem’s energy cap will rise 4% in October-December 2026, while Rothschild & Co estimates that the January 2027 cap could rise 16% if relevant gas forward prices remain at their recent average, adding 50bp to headline inflation.
• Labour-market slack, declining services inflation and moderating pay growth should limit second-round effects, but food prices could rise with a 6-12 month lag because energy affects transport and fertiliser costs; food and energy together represent 16% of the CPI basket.
• Markets are pricing four 25bp Bank Rate increases over the next 12 months, although the authors consider this potentially excessive given the softer labour market; higher rates would weigh on autos, appliances, furniture and home renovations.
• A tax increase remains a further risk ahead of the late-October budget, while households may temporarily reduce saving to absorb higher energy costs, as they did during the 2022 cost-of-living crisis.

Takeaway: The article expects downside risks to UK real spending, especially in discretionary categories, over the next few quarters, although falling savings and limited wage-price pressure could provide temporary support.