UK business confidence drops to lowest level since late 2022 – ICAEW survey

Business sentiment in the UK fell sharply in the second quarter of 2026 (Q2 2026), with the Institute of Chartered Accountants in England and Wales’ (ICAEW) Business Confidence Monitor showing a reading of -14.6, down from -1.1 in Q1 and the weakest result since Q4 2022.

The latest figure means confidence has remained below zero for six consecutive quarters, matching the longest run of negative readings since the 2008 financial crisis.

The ICAEW said such weak readings are usually associated with difficult conditions for both companies and the wider economy, pointing to periods such as the inflation shock that followed Russia’s invasion of Ukraine in 2022.

According to the accountancy body, the latest decline appears to have been driven by softer expectations for sales and increasing cost pressures against a backdrop of rising geopolitical instability.

Forecasts for sales, gross profits and turnover growth over the next 12 months all weakened in Q2 as more businesses became concerned about customer demand.

Geopolitical risk was identified as the fastest-growing threat to business performance, with 65% of respondents saying it was a concern.

The ICAEW said this likely reflected the effects of the conflict involving Iran as well as mounting uncertainty in the UK ahead of a possible change in prime minister.

Labour costs were the second most commonly cited pressure, highlighted by 58% of companies during a quarter that included a significant rise in the minimum wage.

Energy costs also climbed up the list of concerns, with the share of companies pointing to this issue rising from 35% in Q1 to 55% in Q2.

Transport-related pressures also increased markedly. With the Strait of Hormuz closed and fuel prices rising, the proportion of businesses reporting transport concerns jumped from 11% to 20%, the highest level in more than two years.

Confidence was negative across eight of the nine sectors covered by the survey. Business services recorded the weakest reading at -20.7, followed by property at -19.3.

Energy, water and mining was the only sector to post a strongly positive reading, at 10.5.

The survey also pointed to mounting inflationary pressures for businesses. Input price inflation rose to 4.1% in Q2, its highest level since Q3 2024, reflecting higher costs for materials and wider global pressures. Businesses also lifted their expectations for input cost growth over the coming year to the highest level since Q1 2023.

At the same time, salary growth eased slightly in Q2 and is expected to slow further over the next 12 months, the monitor found.

Selling price inflation also increased, edging up to 2.5% in Q2, the highest level since Q4 2024. Expectations for price growth over the coming year climbed to their strongest point since Q1 2024.

Among sectors, energy, water and mining businesses expect the largest rises in prices charged to customers over the next year, followed by transportation and storage.

The findings also suggested greater financial strain among companies. Nearly a quarter of businesses, or 24%, said late payments were becoming a more serious issue, the highest share since Q1 2021. Concern about bank charges also increased slightly to 10%.

Sector-level data showed the greatest worries over late payments were in construction, where 37% of companies reported the issue, followed by IT and communications at 30%, and transport and storage at 28%.

ICAEW CEO Alan Vallance said: “Our research shows that most businesses are increasingly troubled by geopolitical risks, and frankly, it is hard to see these worries easing until hostilities truly subside.

“With a summer of domestic uncertainty on the horizon, the next prime minister must prioritise cultivating the conditions for companies to thrive and grow, including reducing the complexity, cost and uncertainty that are holding them back.”