Iran war dents business confidence, finds ICAEW survey

Business confidence has been seriously dented following the outbreak of war in the Middle East, finds the quarterly business confidence survey of the Institute of Chartered Accountants of England and Wales (ICAEW).

The quarterly survey of 1,000 UK business leaders had been on track to move into positive territory for the first time since the end of 2024 but dropped significantly following the outbreak of conflict in Iran and its impact on energy costs and supply chain risks.

Suren Thiru, the ICAEW’s Chief Economist said: “The first quarter was a tale of two halves for the UK economy as the early-year optimism was dramatically snuffed out as the Middle East conflict refuelled fears over skyrocketing cost pressures and wider economic conditions.”
Source: ICAEW

Domestic and export sales expectations for the next 12 months decreased after the war began, the ICAEW survey reports, whilst at the same time, increasing selling price inflation expectations for the period.

Energy costs are a concern for 35% of firms surveyed, with worries highest in transport and storage, energy, water and mining, and retail and wholesale – all energy-intensive sectors.

The ICAEW confidence survey reports:

• Business confidence was rising for the first two months of 2026, falling rapidly following the outbreak of the Iran war. Business confidence is scored at -1.1 – the fifth consecutive negative score.
• Annual domestic and export sales rose, with businesses optimistic for the year ahead. Optimism deteriorated as the impact of the conflict took hold.
• Labour costs and wage growth are reported as the largest challenges facing most businesses, with a further third pointing to energy price volitivity.
• Inflationary pressures are expected to rise despite falls earlier this year.
• Concerns around the tax burden facing businesses has waned from its five-year high (recorded in the final quarter of 2025), but remains three times higher than its historical norm.
• Business confidence is highest in the energy, water and mining, banking, finance and insurance and IT and communications sectors and lowest in the retail and wholesale, transport and storage and construction sectors.

Regional spotlight: London and the South East

Businesses confidence in London increased significantly, moving into positive territory for the first time in 12 months. Across the wider South East, the picture remains stubbornly gloomy, with businesses amongst the most pessimistic.

Sector spotlight: Confidence varies

Confidence understandably varies from sector to sector. As the ICAEW survey reports, the least confident sector remains retail and wholesale, closely followed by transport and storage and construction – industries that are facing long term pressures and structural challenges. The most confident sectors are energy, water and mining, banking, finance and insurance, and IT and communications.

Increased domestic growth is, in part, responsible for that increased confidence. Changes to employment legislation and the increase to Employer National Insurance contributions and the National Minimum Wage continue to present retailers with considerable challenges. Global uncertainty following the escalation of the conflict in the Middle East and rising fuel prices, as well as weaker sales, will be contributing to the decline in confidence in the transport and storage sector.

How should businesses respond?

While the underlying drivers of this dip in confidence are largely outside the control of individual businesses, the survey reinforces the importance of resilience, contingency planning and adaptability to what and how you are working in an uncertain environment.

Cost pressures remain front of mind. With energy prices once again a key concern, businesses should revisit cost management strategies, including, where they can, reviewing supplier arrangements, improving operational efficiency and longer-term pricing strategies to protect margins.

Cash flow management is also likely to become increasingly important. As uncertainty feeds into slower decision-making and potential delays in customer payments, maintaining strong visibility over cash positions and working capital will be critical.

At the same time, businesses should avoid becoming overly defensive. The survey highlights that demand has not disappeared, and in some sectors remains relatively robust. For those able to invest, there may be opportunities to strengthen market position while competitors retrench.

Scenario planning will be key. Businesses should consider a range of potential outcomes – from continued volatility in energy markets to further disruption in global supply chains – and ensure they are prepared to respond quickly.

Above all, clear communication with employees, customers and suppliers – will be essential in maintaining confidence and stability during a period of heightened uncertainty.

We support many businesses in navigating changes and challenges. If you are looking for support or guidance, please do not hesitate to contact us. You can also read the ICAEW’s business confidence monitor – The Institute of Chartered Accountants in England and Wales (ICAEW) here.