Business confidence fell across most UK nations and regions in the second quarter, as companies absorbed the economic effects of the Iran war, elevated costs, and weaker sales expectations, according to ICAEW’s latest regional business confidence analysis.
The accountancy body said sentiment had dropped to a near four year low across the UK. The regional reports point to a broad deterioration rather than a single localised shock, with companies citing pressure on sales performance, inflation, energy costs, and uncertainty.
ICAEW’s Business Confidence Monitor is based on responses from business leaders and chartered accountants and is used as a barometer of operating conditions across the UK. The latest update suggests that the fallout from the conflict in Iran has entered day to day business planning through energy, supply chain, and risk channels.
Regional confidence data often indicates how willing companies are to invest, hire, expand capacity, increase stock, or preserve cash. When sentiment deteriorates across several regions at once, weaker demand can spread through supply chains and delay capital expenditure that would otherwise support productivity.
The latest figures come as management teams are already dealing with a crowded risk environment. Inflation remains a concern, interest rates continue to affect borrowing costs, employer costs have increased, and demand remains uneven across consumer and business markets. Geopolitical risk now sits alongside those domestic pressures as a direct planning variable.
The Iran war affects the operating environment through several channels. Energy prices and shipping risk can feed into transport, production, and utility costs. Supply chain uncertainty can lengthen lead times or push companies to hold more inventory. Financial market volatility can affect investment decisions, pension funding, and currency exposure. Companies without direct Middle East exposure can still feel the effect through suppliers, customers, insurers, and finance providers.
The regional spread of weaker confidence is also a test of the government’s growth agenda. National growth plans depend on companies outside London and the South East having stable demand, predictable costs, and access to finance, skills, infrastructure, and markets. Weak confidence can become self reinforcing if companies cut discretionary spending, defer recruitment, and postpone projects.
Finance teams face difficult judgement calls in that environment. Lower confidence affects budgeting and forecasting, because directors must decide whether revenue weakness is temporary or structural. Working capital, customer payment behaviour, credit risk, covenant headroom, and capital expenditure all require fresh scrutiny when confidence falls.
The ICAEW update lands alongside wider data showing pressure across the economy. Manufacturing surveys have pointed to weak order books and rising cost pressure, while retail and hospitality operators continue to face wage, rent, rates, logistics, and energy pressures. Technology investment remains active, but many organisations are scrutinising payback periods more carefully.
That combination creates a familiar management problem: companies need to invest in resilience and productivity while preserving flexibility. Energy efficiency, automation, cyber security, AI adoption, data infrastructure, and supplier diversification can all reduce vulnerability over time, but they require capital at a point when confidence is weaker.
Although confidence is not the same as performance, it often precedes action. Companies that expect weaker trading conditions may reduce hiring, shorten planning horizons, and demand faster returns on investment. Suppliers then experience lower orders, and professional services providers see slower project pipelines. A broad regional fall therefore gives a stronger warning than an isolated sector reading.
The latest reports also show the limits of a single national economic average. Regions differ by sector mix, export exposure, infrastructure, labour market conditions, and dependence on public spending. Manufacturing heavy areas may be more exposed to energy and supply chain disruption. Services led regions may feel wage pressure and consumer caution more directly. Rural and coastal areas can be affected by transport, tourism, and seasonal demand.
The second half of the year will show whether the Q2 slump translates into weaker investment and employment or whether companies treat the shock as temporary. Much will depend on energy markets, inflation expectations, interest rate signals, and the credibility of government measures on business costs, infrastructure, and finance access.
The immediate signal is one of caution. Confidence has weakened across the UK at a time when companies are being asked to manage cost pressure, invest in productivity, and absorb geopolitical risk. That puts greater weight on measures that reduce uncertainty, shorten administrative friction, and improve the conditions for regional investment.
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