Small businesses face compounding shocks as Middle East crisis reshapes economic outlook

When we published our last Economic Outlook in February 2026, we flagged that the conditions facing UK small businesses were already challenging: elevated financing costs, persistent wage inflation, subdued consumer demand, and a fiscal environment offering little relief. The expectation was that gradual improvement, particularly through Bank Rate cuts, would provide some breathing room through 2026. That assumption no longer holds.

The economic picture has shifted materially since February

The Middle East crisis that began on 28 February, triggered by joint US-Israeli military strikes on Iran and the subsequent disruption to shipping through the Strait of Hormuz, has altered the economic outlook for UK businesses more sharply than most analysts anticipated. The effects are being felt across energy costs, supply chain stability, inflation, and the trajectory of interest rates and they are arriving simultaneously, which is what makes this moment different from the disruptions of recent years. The UK's particular exposure to global gas prices means the impact here is more acute than in most comparable economies; the OECD has specifically identified the UK as facing the largest growth impact from the conflict among all G20 advanced economies. For small businesses, the pressures that were already present at the start of the year have not eased. They have compounded.

The gap between resilient and exposed businesses

Across every sector we have analysed this quarter: retail, hospitality, construction, manufacturing, transport, professional services, and tech, the same pattern is visible. The businesses best placed to absorb the current environment share identifiable financial characteristics: clean credit profiles, active cash flow management, and funding relationships built before they were urgently needed. The distance between those businesses and those operating with less flexibility is growing, and it is the central finding of this edition.

Read the full June 2026 Economic Outlook

Our analysis in our June 2026 Economic Outlook sets out what the latest data shows, how it is affecting borrowing conditions across six sectors of the UK economy, and what businesses need to do to come through this in a position of strength.

If you want to understand where your business stands and what finance options are available to you right now, our team is here to help. The conversation is worth having before the pressure arrives, not after.