Geopolitical risks were cited in most regions and nations in the UK as a major challenge in ICAEW’s latest Business Confidence Monitor, with businesses in the West Midlands, London and the South East most concerned.

Rising energy costs, related to the wider impacts of the Iran war, were the next most significant concern. Manufacturing-heavy regions, such as the West and East Midlands, have been particularly impacted.

Other challenges included labour costs and late payments, which are at a five-year high nationally.

Highest pessimism: the East Midlands

Confidence in the East Midlands fell in Q2 to -22.3, down from -11.4, due to its dependence on production and logistics.

“Businesses in the East Midlands have been clear about the impact of the conflict in Iran on their confidence, with sentiment dropping significantly this quarter,” said Simon Gray FCA, ICAEW Regional Director for the East Midlands.

“It is particularly notable that two-thirds of our companies said energy costs were their biggest challenge, more widely cited than in any other UK region.”   

Energy-intensive manufacturing and transport are key sectors in the region and are being affected significantly by the impacts of global volatility.

“With lower domestic sales forecast and increased cost pressures, businesses are unsurprisingly looking to be more cautious about their investment plans for the year ahead,” confirmed Gray.

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Most optimistic: Yorkshire and the Humber

Yorkshire and the Humber bucked the national trend, with the only positive score on the confidence index (2.1). Domestic sales and exports are projected to increase in the region, minimising wider economic impacts.

The area has seen some growth in recent years, in particular through burgeoning finance-related sectors. Leeds, for example, has the Northern Square Mile a growing market for fintech, finance and professional services – the second largest finance and professional serviced hub outside of London.

“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.” said Kim Johnston, ICAEW Regional Director for Yorkshire and the Humber.

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Wales: good news in domestic sales

While confidence fell sharply in Wales, projections for domestic sales are positive, with expectations that sales will increase across the next 12 months. However, labour costs are still an issue for Welsh businesses.

“It’s pleasing to see that domestic sales are forecast to increase in the next year, demonstrating optimism among our businesses,” said Robert Lloyd Griffiths, ICAEW Director for Wales.

“From Caerdydd to Clwyd, Wales is strongest when we all work together. We look forward to speaking to colleagues in the new Westminster government and the Senedd to deliver growth and prosperity for the Welsh economy.” 

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Scotland: a sharp drop in confidence

Scottish businesses went from relative optimism in Q1 2026, to a confidence reading of -21.1 in Q2. Energy costs and concerns about geopolitics are having a big impact, increasing uncertainty and cautiousness within Scottish businesses.

“With widespread economic disruption caused by conflict in the Middle East, it’s unsurprising that energy costs were the biggest challenge reported by Scottish businesses, the most acute in any UK region we surveyed,” said Kim Johnston, ICAEW’s Director for Scotland.

“Scottish businesses also reported concerns about exports growth which likely follows slowing US demand for Scottish whisky and salmon as a result of tariffs.”

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London/South East: high costs bite

The largely service-based London economy performed well in Q2, reaching a three-year high driven by IT and communications, banking, finance and insurance. However, businesses are still concerned about geopolitical uncertainty, and business costs are particularly high.

“London’s companies remain concerned about the high cost of doing business, especially rising wage bills, as salary growth in the capital outpaced most of the UK,” said: Meghan Doyle, ICAEW Regional Director for London.

“Businesses continue to proceed with caution about investment decisions and are therefore planning to slow spending over the coming year.”

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North West: weak export growth hampers confidence

Companies in the North West experienced the weakest yearly export growth of any region in the UK. While there is some optimism that this will improve going into 2027, confidence has fallen sharply, with due to the Iran war and its knock-on impacts.

Justin Kyriakou, ICAEW Regional Director for the North West and Acting Director of Regional Engagement, said: “New Prime Minister Andy Burnham must prioritise cultivating the conditions for companies to thrive and grow, including reducing the complexity, cost and uncertainty that are holding them back.”

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