BCC: UK businesses brace for long economic fallout from Iran conflict

The majority of UK businesses are already experiencing, or expect soon to experience, the economic impact of the conflict involving Iran, with consequences likely to persist “for many months,” according to a report by the British Chambers of Commerce (BCC).

The BCC, quoted by The Times, said that 80% of the 800 firms surveyed reported either a current or anticipated impact from the conflict in the Gulf. The most frequently cited pressures were rising energy prices and increased shipping costs.

More than half of respondents (55%) said they were already directly affected by instability in the Middle East, while an additional 25% expect to be affected in the near future.

The manufacturing sector reported the most significant disruption, with 68% of firms already impacted and a further 23% anticipating effects soon.

Businesses indicated they are preparing for a range of potential disruptions, including higher energy bills, supply chain instability, and rising raw material costs. The survey found that 75% of companies expect energy costs to increase over the next year, with 43% forecasting rises exceeding 20%. This raises the likelihood of increased inflation if businesses pass those costs on to consumers.

“The impact of the Iran conflict is being directly felt by firms the length and breadth of the UK. Higher energy bills, shipping disruption and the rising cost of raw materials are daily concerns for businesses,” said William Bain, head of trade policy at the BCC.

“Even if the current ceasefire soon signals the end of the conflict, the economic reverberations will be felt for many months to come. The geopolitical kaleidoscope has been shaken and there’s no quick fix.”

The BCC warned that many companies remain particularly exposed to rising energy costs, as there is no price cap on commercial energy bills. The organisation has called on the government to fund renewable levies included in energy bills to help reduce costs.

Economic forecasts also point to a slowdown. Analysts at KPMG expect UK GDP growth to nearly halve, falling to 0.8% in 2026 from 1.4% the previous year. The projected slowdown is attributed to higher energy costs driving inflation, reducing consumer spending, and potentially prompting interest rate increases by the Bank of England. Economists added that existing weaknesses in the labor market could “amplify” the negative effects on growth.

Yael Selfin, chief economist at KPMG UK, said: “The UK and Europe are once again confronting a major energy-related shock, but the nature of this crisis differs materially from the start of 2022. Direct gas exposure is lower than during the Russia-Ukraine energy crisis, reducing the risk of physical shortages. However, the broader impact on global commodities and supply chains means the economic effects could prove more widespread.”

By Tamilla Hasanova