Business confidence in the future of UK economy has plunged to a record low as company directors fear the war will have damaged investment plans and increase costs, a leading survey has found.
Research by the Institute of Directors (IoD) recorded business confidence dropping to a net figure of -76 in March, compared to -63 in the previous month. Cost expectations rose to the second highest level on record after last September at the height of pre-Budget tax speculation while revenue expectations for the year dipped.
Business leaders’ confidence in their own organisations, which has typically been in positive territory, dropped to minus two. The figures are set to add pressure on the government as it faces calls not to ignore businesses when chancellor Rachel Reeves announces further “targeted” support in the coming weeks.
Anna Leach, chief economist at the IoD, said manufacturers were at the “sharp end of results” as many had reported an immediate negative impact.
“Impacts being reported include sharp increases in fuel and shipping costs, rising material prices — such as petrochemicals — and delivery delays”, Leach said.
Apart from business confidence, consumer confidence has also plunged. Confidence in the state of the economy has plummeted since the outbreak of the Iran war, as shoppers tighten their purse strings amidst fears of sharp price rises.
Consumer sentiment over the UK’s economy has fallen to its lowest level on record, from -30 per cent to -53 per cent, according to trade body British Retail Consortium (BRC). Retailers and food manufacturers have been bracing for the Iran war to push up their energy costs, with bosses calling for government intervention to help them avoid having to put up prices.
In March, 64 per cent of Brits said they expect the economy to get worse over the next three months, while 21 per cent were neutral and only 11 per cent thought it would improve. This leaves the BRC’s consumer sentiment rating for the economy at -53 per cent, marking the lowest level and biggest drop this year so far.
Consumers’ assessment of their own personal finances has fallen to its most pessimistic point this year too, with 34 per cent saying they expect their cashflow to worsen while only 18 per cent think their wallets will be fuller in three months’ time.
Chief executive of the BRC, Helen Dickenson, said the prospect of higher inflation has pushed confidence in the economy and personal finances to tumble to record lows.
“Consumer confidence collapsed as the Middle East conflict raised the prospect of higher inflation in the months ahead. As stock markets tumbled, confidence in both the economy and personal finances dropped to their lowest levels on record”.
Dickenson added: “The drop in confidence was most pronounced among the Boomer generation (People born between 1946 and 1964, following World War 2, characterised by a massive surge in birth rates) who are most reliant on investment and pension funds”.
There is also concern among small businesses as ‘costs crunch’ threatens to crush a revival in small business confidence, the government has warned. Figures from the Federation of Small Businesses (FSB) show that confidence improved in the first quarter of this year, having hit a record low at the end of 2025.
But it has still been negative for eight quarters, the FSB said. Now, cost increases including business rates and energy charge increases, as well as a rise in the minimum wage and the expansion of sick pay rules threaten to drag them back. The FSB’s poll found 87 per cent are seeing their costs rise compared to a year ago.
Taxes remain the top driver of costs increases, followed by labour and utility costs. As a result, more than twice as many small firms (21 per cent) plan to cut staff than hire (8 per cent). FSB policy chair, Tina McKenzie said: “The numbers tell a brutal story”.
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