Q1: Sentiment climbs out of negative territory, but the Iran War poses a significant threat to the outlook.
The latest national Business Confidence Monitor (BCM) shows that business sentiment was on course to move into positive territory in Q1 2026, but the outbreak of the Iran war had a dramatic impact in the final weeks of the survey period, with confidence deteriorating sharply. While businesses reported improved annual domestic sales and exports growth and easing input price inflation compared with Q4 2025, the war introduced significant downside risks to the outlook for the coming year.
The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 12 January to 16 March 2026.
- Business confidence in Yorkshire & Humberside returned to positive territory at +0.6 in Q1 2026, rising above the national average (-1.1).
- Improved confidence was backed by strong domestic sales and exports growth but the Iran war means the outlook is less certain.
- Labour costs were the most widespread rising challenge for companies in the region, while concerns over the tax and regulatory burden remain prevalent.
- Annual input cost inflation was unchanged from the previous quarter, but profits growth remains weak with greater risk now attached to the upbeat forecasts.
- Businesses raised their staff count at the joint-fastest pace in the UK and expect to maintain this position over the next 12 months.
- Capital investment and R&D budget growth both improved but businesses plan to moderate both.
Business confidence in Yorkshire & Humberside
Sentiment in Yorkshire & Humberside climbed back into positive territory in Q1 2026. The region’s Business Confidence Index increased from -15.8 in the previous quarter to +0.6, outperforming the national average (-1.1) but still down on the region’s historical average (+4.6).
National weekly survey data suggests that confidence across the UK had been improving throughout Q1 2026 and climbed into positive territory. However, the Iran war and subsequent closure of the Strait of Hormuz on 2 March caused oil and gas prices to spike and pose a significant risk to the outlook for businesses across the UK, including those in Yorkshire & Humberside.
Domestic sales and exports growth
Businesses in Yorkshire & Humberside reported a sharp uptick in annual domestic sales growth to 4.7% in Q1 2026, significantly outpacing the national average (3.5%). Looking ahead, companies in the region had the strongest domestic sales outlook in the UK, with projected growth of 6.2%, more than double the region’s historical average (2.9%) and significantly above the national average expectation of 5.4%. This strong outlook was likely linked to the sharp uplifts anticipated in the locally important Business Services and Manufacturing & Engineering sectors.
Similarly, annual exports growth picked up significantly in Q1 2026, reaching its highest level since Q1 2014, at 5.2%. This expansion was nearly double the region’s historical average (2.7%) and only lagged the growth recorded in the North East (5.6%). However, this strong performance is not expected to be sustained, with businesses anticipating that exports growth will slacken to 3.4% over the coming year, below the national average projection (4.1%). However, the heightened global uncertainty and increase in energy costs caused by the Iran war places greater downside risk on both the domestic and export sales expectations.
Labour market
After reducing headcount in the previous quarter, businesses in Yorkshire & Humberside increased staff levels at the joint-fastest rate in the year to Q1 2026, with an increase of 2.4%, more than double the pace recorded across the UK (1.1%). Businesses in the region have seemingly adapted to the rise in National Living Wage and employers’ National Insurance Contributions, as they anticipate that this comparatively strong performance will continue over the coming year, with an increase of 2.2% forecast. This projected rise is still more than double the region’s historical average (1.0%) and exceeds the expectations of all other regions.
Despite the uptick in employment growth, concerns over the availability of management (6%) and non-management (11%) skills were less prevalent in Yorkshire and Humberside than almost all other regions and were significantly down on their respective historical averages (14% and 19%).
As labour demand increased, annual salary growth also ticked up in the region to 3.3% in Q1 2026, the highest reported expansion since Q3 2024 and broadly in line with the 3.2% rise recorded nationally. Over the coming year, companies anticipate wage inflation will soften to 2.9%, notably above the region’s historical average (2.3%) but consistent with the UK-wide projection.
Input and selling prices, and profits growth
Annual input price inflation was unchanged from the previous quarter at 3.5% in Q1 2026, slightly below the 3.6% rise recorded across the UK. Companies expect input cost inflation to moderate to 3.0%, still marginally above the region’s historical norm (2.7%) and matching the 3.0% rise forecast nationally. However, oil and gas price rises following the closure of the Strait of Hormuz places greater uncertainty around these expectations.
Companies in Yorkshire & Humberside softened the rate at which they increased their selling prices in the year to Q1 2026, to 2.0%. While this expansion is still above the region’s historical average of 1.6%, it is below the national average uplift of 2.3%. Over the next 12 months companies plan to increase their selling prices at a sharper rate of 2.3%, matching the forecast nationally.
Despite sales improvements, profits growth in the region was among the softest in the UK at just 2.0% and lagged the national average of 3.1%. However, companies expect profits growth to pick up significantly over the coming year. The projected increase of 6.4% is more than double the region’s historical average of 2.8% and significantly above the expected national average (5.2%).
Business challenges
Labour costs were included as a challenge for the first time in the survey in Q1 2026 and the issue was more prevalent among businesses in Yorkshire & Humberside than in almost any other region. Of the companies surveyed, 63% cited labour costs as a rising concern over the past 12 months, markedly above the UK proportion (56%).
Meanwhile, the proportion of businesses reporting the tax burden as a rising challenge declined from the historical high last quarter but, at 59%, the issue was more widespread than in most other regions and nearly three times the region’s historical average (19%). Regulatory requirements also remain a prevalent issue, with 50% of businesses citing this concern as a rising challenge. The issue was down from the seven-year high recorded in the previous quarter but was still significantly above the region’s historical average (39%) and was a more widespread concern compared to the UK average (47%).
At the same time, concerns over energy costs were also more widespread than any other region, at 42%, notably above the national average (35%), indicating the region could be somewhat more exposed to future energy price rises due to the Middle East conflict.
Investment
Capital expenditure growth in Yorkshire & Humberside reached a two-year high in Q1 2026 of 2.8%. This increase was ahead of both the region’s historical (2.0%) and national averages (2.5%). However, businesses in Yorkshire & Humberside plan to cut investment growth by nearly half over the next 12 months, to 1.5% and below the UK average projection of 1.9%.
Yorkshire & Humberside recorded one of the sharpest upticks in annual R&D budget expansion in the UK, at 2.5%, only behind the growth recorded in the East Midlands, and above the region’s historical average of 1.7%. However, companies plan to slow growth to just 0.7% over the next 12 months, half the growth expected across the UK as a whole (1.4%).
The downbeat investment view could be linked to the high proportion of businesses that are operating below capacity in Yorkshire & Humberside. Nearly two thirds (62%) of companies said they have spare capacity compared to 50% across the UK.