In the near-term, rising energy prices can appear to have a minimal impact on consumer spending. However, the experience of the last energy crisis shows the real risk for consumer-facing businesses lies in what comes later – a delayed but prolonged squeeze on confidence, incomes and discretionary demand.

What the last energy crisis tells us about consumer behaviour

While Russia's invasion of Ukraine in February 2022 was the catalyst for the last energy crisis, in truth, the deterioration in consumer sentiment had already begun. Confidence entered freefall in January 2022 – a month before the invasion – and took nine months to reach a record low of -49 in September that year.

This downturn had been building from the end of 2021. Global supply chain disruption and rising wholesale energy prices had pushed inflation higher, squeezing household budgets. At the same time, the Bank of England’s first rate rise since the pandemic in December 2021 signalled higher borrowing costs ahead, adding further pressure to sentiment.

Crucially, the timing of the decline highlights an important dynamic for businesses. Wholesale energy prices peaked in May 2022, but consumer confidence did not bottom out until September, four months later. This reflects the way energy shocks have a gradual impact on the economy, with higher input costs affecting consumer prices, household bills and, ultimately, spending behaviour.

The recovery tells a similar story. A year after the invasion, in February 2023, confidence remained deeply negative at -38, despite wholesale energy prices easing from their peak. This reflects the lagged pass-through of higher energy and input costs into consumer prices, with CPI still elevated at 10.4% and continuing to squeeze household finances. Sentiment didn’t return to pre-invasion levels for two years.

Weak income growth leaves consumers exposed

Even before the Iran crisis, real household disposable income (RHDI) was expected to only grow modestly this year, at roughly 0.5%. This was based on inflation rising back over 2.5%, combined with the higher tax burden and weaker labour market weighing on nominal income growth.

In a best-case scenario where energy prices drop quickly, real household incomes would still stagnate this year. In a scenario where oil rises to $150 per barrel and gas reaches 300p per therm – and those remain elevated throughout the year – incomes could fall by around 2% in 2026. This is similar to how RHDI fell in 2022, despite government support.

Savings may cushion the shock – but won’t prevent the slowdown

A key factor in the current environment and the last energy crisis is the role of household savings.

In 2022, consumers entered the crisis with an unusually high savings ratio of around 20%, built up during the pandemic. This provided a meaningful buffer, allowing households to absorb higher costs while maintaining discretionary spending in the short term.

Today, while savings buffers are not as elevated, the savings ratio remains above pre-pandemic norms. The capacity for households to draw down savings to smooth the impact of higher costs in the near term could limit an immediate hit to consumption.

However, the experience of the last energy crisis highlights the implications this has for the path to recovery. At the height of the crisis in 2022, the savings ratio fell to around 4–5% as households drew on savings to support spending, before rebuilding steadily to over 10% by 2024.

This points to a lasting behavioural shift. In the aftermath of a shock, households prioritise rebuilding financial resilience, even as inflation eases and interest rates begin to fall. The result is a more prolonged drag on discretionary spending.

The key risk for businesses: a delayed and uneven recovery

For businesses, the key takeaway is that the impact of an energy shock on consumer behaviour is both delayed and prolonged. Entering 2026, the UK economy is already on a softer footing, with weaker growth, a cooling labour market and more fragile consumer confidence. While savings may cushion the near-term impact, weak real income growth and a renewed focus on rebuilding financial buffers are likely to weigh on spending for longer.

This points to a more challenging second half of the year for consumer-facing businesses. If the conflict persists, consumers are likely to rein in spending and double down on value. The experience of 2022 shows that those who navigated this best focused on margin discipline — using targeted pricing, tighter cost control and clearer value propositions, rather than relying on blanket discounting.

In an environment where demand is delayed, uneven and slower to recover, success will come from identifying where consumers remain willing to spend and protecting profitability while doing so.

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