Business confidence in the UK has seen a modest deterioration in July, largely attributed to policy uncertainty and ongoing cost pressures, according to a new report from the Institute of Directors (IoD).
A poll of over 500 business leaders indicated that confidence remains subdued, with concerns mounting over potential future cost increases, particularly in light of renewed conflict in the Middle East. The IoD's chief economist, Anna Leach, stated that businesses are experiencing a squeeze on households and their own operations due to these pressures.
Leach also highlighted that political upheaval and a change in political leadership have intensified policy uncertainty. Businesses are calling for an end to what they describe as "constant speculation" regarding potential tax changes, especially those that could negatively impact Britain's investment climate. The IoD also urged engagement with the government on its workers' rights legislation to prevent damage to economic growth.
Economic Forecasts and Geopolitical Risks
These domestic concerns are compounded by external economic threats. A separate report from accountancy giant EY warned that a prolonged closure of the Strait of Hormuz could have significant repercussions for the UK economy. Such an event could tip the UK into recession and push inflation above 6 percent.
EY's central forecast predicts the UK economy will grow by 0.9 percent this year and 1.2 percent next year, assuming the Strait of Hormuz reopens by the end of September. However, a more pessimistic scenario, which is becoming increasingly likely following the collapse of the ceasefire between the US and Iran, anticipates the strait remaining closed into next year.
In this prolonged closure scenario, EY forecasts GDP growth to be 0.5 percent this year and a contraction of 0.2 percent next year. Inflation is also expected to be significantly higher, potentially reaching 6.4 percent if the strait remains closed, compared to 3.5 percent if peace prevails.
Brent crude oil prices have fluctuated significantly, surging from $72 a barrel before the recent conflict to $126 in April, and recently hitting $100 before easing. EY's UK chief economist, Peter Arnold, noted that while an extended closure into 2027 could lead to higher inflation and an economic contraction next year, an earlier reopening would help the UK avoid a more pronounced downturn.