With business confidence hitting a new low in 2026, businesses are looking outside of the UK to gauge when things will improve. For 65% of businesses, according to ICAEW’s latest Business Confidence Monitor (BCM), geopolitical risks are the top issue affecting decision making.

The impacts of the Iran war are made worse when you factor in Labour costs (as cited by 58% of respondents) and energy costs (55%), the latter linked to those geopolitical risks.

Late payments also hit a five-year high, despite measures to reduce them – one-quarter of businesses (24%) cited it as a growing issue. Firms in the construction (37%), IT and communications (30%) and transport and storage (28%) sectors suffered the most late payments.

Global pressures raise input costs

Input price inflation ticked up to 4.1% in Q2 from 3.6% in Q1, reflecting higher input costs and global pressures. Businesses also raised their forecasts for the rate of input cost growth over the next 12 months. Meanwhile, salary growth slowed slightly in Q2 and will likely continue to slow in the year ahead.

Selling price inflation went up to 2.5% and will likely increase to the highest point since Q1 2024 in the next 12 months. Energy, water, mining, transport and storage costs are likely to go up the most.

The overall index

The BCM index now sits at -14.6, the lowest it has been since the end of 2022. It marks the sixth successive negative quarter, matching the global financial crisis of 2008. Projected sales, gross profits and turnover for the year ahead all slowed in Q2 as concerns over customer demand increased.

“These findings are a sobering reminder of just how exposed UK businesses are to global instability. The war in Iran has knocked confidence significantly and the economic consequences are proving hard to shake,” said Alan Vallance, ICAEW Chief Executive.

“Our research shows that most businesses are increasingly troubled by geopolitical risks, and frankly, it’s hard to see these worries easing until hostilities truly subside.”

The next prime minister must focus their efforts on encouraging growth, he added, including reducing the complexity, cost and uncertainty that are holding businesses back.

Businesses are responding to strengthening cost pressures with limited price rises, which shows that demand is weak, confirmed Suren Thiru, ICAEW's Chief Economist. This means that many firms are struggling to fully pass higher costs on to customers, squeezing profit margins.

He said: “Even if the peace deal holds, the weakening in forward-looking sales indicators points to a difficult second half of the year for the UK economy, as the aftereffects of the Iran conflict continue to weigh on activity.”