UK Consumer Confidence Plummets as FTSE 100 Faces Crosscurrents

The UK’s economic narrative in early 2025 has been marked by a stark divergence: plummeting consumer confidence contrasts with the FTSE 100’s resilience. This disconnect reflects deepening domestic pessimism amid global trade tensions, even as the stock market’s defensive structure and international earnings shield it from the worst of the storm—for now.

A Crisis of Confidence

UK consumer confidence sank to crisis levels in April 2025, with the GfK index plummeting to -53, its lowest since December 2022. This decline, driven by fears of a worsening economy, cost-of-living pressures, and geopolitical instability, has left households in a state of near-paralysis. Sixty-four percent of respondents in a Which? survey believed economic conditions would deteriorate further, with tariffs, inflation, and tax policies cited as key concerns.

The data paints a grim picture:
- General Economic Outlook: Expectations for the next year fell to -37, an eight-point drop from March.
- Personal Finances: Confidence in future household finances slumped to -3, with 58% of consumers cutting non-essential spending (Deloitte Consumer Tracker, Q1 2025).
- Savings vs. Spending: While the savings index rose to +30, the major purchase index collapsed to -19, signaling reluctance to commit to big-ticket items.

FTSE 100: Resilience Amid Uncertainty

Despite the gloomy domestic backdrop, the FTSE 100 has defied gravity. In early May, it posted its longest consecutive daily gains since its 1984 inception, adding 5.6% year-to-date (YTD) by May 2. Defensive sectors like utilities and pharmaceuticals, alongside cyclical winners such as retailers and housebuilders, powered the rally. The index’s 75% reliance on international earnings shielded it from domestic weakness, while its 3.5% dividend yield attracted yield-seeking investors.

However, cracks are emerging. By May 2, futures pointed to a 0.1% decline in London stocks, signaling a potential correction after the prolonged rally. Meanwhile, half of UK companies issuing profit warnings in April blamed global trade tensions, with Ford Motor Co. estimating a $1.5 billion hit to operating profits due to tariffs.

Monetary Policy and the Global Crosswinds

The Bank of England is under pressure to respond. With inflation easing to 2.6% in March but fears of tariff-driven resurgence, policymakers face a dilemma: cutting rates risks fueling inflation, while inaction risks further dampening demand. Markets anticipate a 0.25% rate cut by mid-2025, but the lag in transmission means relief may arrive too late for struggling households.

Globally, the FTSE’s outperformance contrasts with US markets, where the S&P 500 dipped 3.9% YTD amid volatility. Asian markets, including China’s Shanghai Composite and Hong Kong’s Hang Seng, edged higher, suggesting a tilt toward value and stability. Yet, the FTSE’s reliance on international earnings exposes it to geopolitical risks, particularly as trade wars escalate.

The Outlook: Caution and Contradictions

The UK’s economic future hinges on two critical factors: the timing of a global trade resolution and the resilience of consumer spending. With the May consumer confidence data set for release on May 23, 2025, investors await clues on whether the April collapse was an anomaly or the start of a deeper slump.

For now, the FTSE’s defensive structure and dividend appeal provide a buffer. Yet, the $1.5 billion tariff-related losses at Ford underscore the vulnerability of companies exposed to global supply chains. Investors should favor sectors insulated from trade shocks—such as utilities or pharmaceuticals—while remaining wary of cyclical plays like housebuilders.

Conclusion: A Delicate Balancing Act

The UK’s economic narrative remains a study in contrasts. While the FTSE 100’s 15-day rally highlights its ability to decouple from domestic pessimism, the -53 consumer confidence index warns of underlying fragility. With the Bank of England’s delayed policy response and unresolved trade tensions, the path forward is fraught with uncertainty.

Investors must navigate this terrain with caution. The FTSE’s gains may continue if global earnings hold up, but a further drop in consumer confidence—or a sharp escalation in trade disputes—could reverse the momentum. The stakes are high: 58% of households are already cutting back on non-essentials, and without a reversal in sentiment, even the market’s defensive armor may prove insufficient. The next few weeks will test whether this divergence can endure, or if the UK’s economy finally succumbs to its own weight.