Delays to materials, rising costs, stock shortages, and supplier failures are now a top concern for two in five business leaders, according to a new survey. The worsening fallout from the Iran war is forcing companies to halt their UK investment and hiring plans, bosses have warned, as Britain enters a renewed period of political and economic instability.
Businesses struggle to absorb economic shock
More than two months into the US-Israeli war on Iran, leading surveys of UK employers show that companies are increasingly prioritising cost management over growth. Rising costs and global uncertainty are weighing heavily on confidence. According to a survey by accountancy firm BDO, over half of medium-sized businesses cite higher energy and fuel costs, combined with supply chain pressures, as their biggest challenges amid the ongoing Middle East conflict.
Amid rising domestic political uncertainty, as Keir Starmer’s Labour government braces for a leadership challenge, business leaders report that companies are holding back from investing in Britain. Richard Austin, a partner at BDO, noted that instead of focusing on expansion, UK businesses are “struggling to absorb the latest economic shock in an uncertain global and political backdrop.”
Government response and employer priorities
The survey comes as Chancellor Rachel Reeves travels to Paris for meetings with G7 finance ministers to coordinate action among the world’s most powerful nations to limit the economic fallout from the war. Reeves is expected to announce the next phase of support for British households and businesses to soften the impact. However, bosses warn that the damage from the Middle East conflict is steadily rising.
A separate report from the Chartered Institute of Personnel and Development (CIPD), the professional body for HR, found that UK employers are prioritising cost management over growth. Nearly 60% of employers cite costs as their key priority, as rising energy and supplier bills compound higher labour costs prompted by last year’s increase in employer national insurance and the legal minimum wage.
Vacancies drop sharply
Another report from the Recruitment and Employment Confederation (REC) shows that job creation is under threat. The number of vacancies in the UK for April fell by 7.7% compared to March, to 711,733, and by 5.6% from April last year. Job postings for pilots, travel agents, and train drivers have fallen the most, while postings for nannies, au pairs, sales executives, and couriers have increased.
Neil Carberry, chief executive of the REC, said: “The labour market is entering a more unpredictable phase after a solid start to the year.” He noted that momentum eased in April after a good start, reflecting “growing sensitivity to the conflict in the Gulf” as well as the timing of the Easter holidays. Combined with “sudden domestic political uncertainty,” he warned that hiring could take a further hit in the coming months. “The likely outcome is a more uneven hiring environment, with some firms pulling back while others continue to support underlying demand,” he added.
Potential bright spots for UK economy
BDO indicated that there could be some “bright spots” for the UK economy emerging amid the Middle East conflict, as some companies seek to protect their supply chains in light of geopolitical uncertainty. Nearly a third of business leaders told BDO they are looking to prioritise UK-based suppliers, and a further 28% are considering moving production to the UK or closer to home, potentially providing a boost to British manufacturers.
Britain’s economy has so far defied expectations for a weak first quarter amid the escalating fallout from the Iran war. Figures from the Office for National Statistics showed growth of 0.3% in gross domestic product in March. This suggests that the Iran war, which broke out on the final day of February, did not immediately affect activity for businesses and consumers as badly as expected, despite soaring oil and gas prices due to the closure of the Strait of Hormuz.
However, economists are pessimistic about the outlook for the rest of the year, warning that some of the growth in the first three months could be the result of businesses and consumers stocking up on goods, fuel, and raw materials ahead of possible supply shortages and higher borrowing rates.
