Iran conflict drives sharp fall in UK business confidence, ICAEW finds

Business confidence declined across nearly all UK nations and regions in the second quarter (Q2) as the fallout from the Iran conflict continued to weigh on companies, according to the Institute of Chartered Accountants in England and Wales’ (ICAEW) latest Business Confidence Monitor (BCM) survey.

The East Midlands recorded the weakest sentiment. Confidence there dropped from -11.4 in Q1 to -22.3 in Q2, according to the ICAEW’s BCM index.

The report linked this to the region’s heavier reliance on production and logistics, which has left businesses more exposed to global trading disruption.

Scotland and the North West saw the steepest quarter-on-quarter swings.

In Scotland, the BCM reading fell from 2.1 in Q1 to -21.1 in Q2, while the North West moved from 9.9 to -14.3 over the same period.

In Wales, sentiment also weakened significantly. However, businesses expect domestic sales growth to pick up over the next 12 months.

Yorkshire and the Humber was the only area to post a positive confidence score, at 2.1. All other nations and regions recorded negative readings.

With the Middle East conflict ongoing during the survey period, geopolitical risk emerged as the most commonly reported threat to business performance in most parts of the country.

This issue was cited most in the West Midlands, where 71% of respondents saw it as a challenge, reflecting the region’s strong exposure to manufacturing and exports. London (68%) and the South East (67%) followed closely.

Energy costs emerged as a significant problem after the closure of the Strait of Hormuz. They were particularly widely reported in the East Midlands (68%), in line with its energy-intensive manufacturing and transport base.

In the North East, 70% of businesses said labour costs were an increasing challenge, compared with 66% in Yorkshire and the Humber.

Late payments, now at a five-year high nationally, were also a concern. Nearly a third of businesses (28%) in Yorkshire and the Humber identified them as an issue.

Kim Johnston, ICAEW regional director for Yorkshire and the Humber, said: “While most regions painted a weak economic picture in the second quarter, Yorkshire and Humber stands out as a region showing resilience – reporting the highest business confidence in the UK.

“Although businesses continue to face economic and geopolitical uncertainty, the region’s diverse economy, strong pipeline of investment and continued focus on regeneration are helping to support a more positive outlook.”