British business confidence has slipped back into negative territory, as escalating tensions in the Middle East—particularly the intensifying Iran–US conflict—begin to ripple through the UK

economy. According to the Institute of Chartered Accountants in England and Wales (ICAEW), optimism among UK firms had been slowly recovering at the start of 2026. Its closely watched Business Confidence Monitor suggested the first positive reading since 2024 was within reach.

That momentum, however, was abruptly reversed.

Confidence dropped from +2.8 just before the outbreak of hostilities to -1.1 by the end of the survey period on March 16, highlighting how quickly geopolitical shocks can undermine fragile economic recovery.

“The first quarter was a tale of two halves,” said Suren Thiru. “Early optimism was dramatically snuffed out as the Middle East conflict refuelled fears over surging cost pressures and a weakening economic outlook.”

War adds pressure to already fragile economy

The renewed confrontation between Iran and the United States—with involvement from Israel—has raised global concerns about energy supplies and trade disruptions.

While not a full-scale global war, the conflict has intensified through targeted strikes, proxy clashes, and heightened military readiness across the region. Markets have reacted swiftly, particularly in oil and gas, where prices have shown increased volatility amid fears of supply disruptions in the Strait of Hormuz—a critical artery for global energy flows.

For UK businesses, the consequences are immediate:

- Rising energy costs are squeezing margins

- Supply chains face renewed disruption risks

- Inflation pressures remain stubbornly high

Five quarters of declining confidence

The ICAEW survey paints a broader picture of sustained pessimism:

- Business confidence has now fallen for five consecutive quarters, marking the longest decline in over six years

- More than half of firms are concerned about rising labour costs, particularly as the UK minimum wage increases

- Around 35% of businesses flagged energy price volatility as a major risk

- Expectations for both domestic and export sales have weakened

- Companies still expect to raise prices at a historically elevated pace, suggesting inflationary pressures are far from easing

The survey gathered responses from around 1,000 accountants between January 12 and March 16, capturing the shift in sentiment as geopolitical tensions escalated.

Global conflict, local consequences

Although the Iran–US confrontation is geographically distant, its economic aftershocks are being felt across Europe. The UK, heavily reliant on stable global trade and energy markets, is particularly exposed to shocks stemming from Middle Eastern instability.

Economists warn that if the conflict deepens or disrupts key oil routes, businesses could face an extended period of high costs and weakened demand—further delaying any meaningful recovery.

For now, what began as cautious optimism in early 2026 has given way to renewed uncertainty, with geopolitics once again proving to be a decisive force in the global economic outlook. Photo by Apcbg, Wikimedia commons.