Recession fears among UK SMEs hit two-year high as Middle East conflict squeezes costs

• More than half (54%) of brokers say SMEs are worried about a recession - the highest level since Q3 2023, when the figure stood at 65%.
• 70% of finance brokers say SMEs are also concerned about rising energy prices caused by the conflict in the Middle East, with 78% expecting the related supply chain disruption to negatively impact UK small businesses.
• Almost three-quarters (74%) of brokers predict CPI inflation will remain above 3% by the end of 2026, with 32% expecting it to top 3.5% — well above the Bank of England’s 2% target.

UK small and medium-sized enterprises (SMEs) are facing a wave of mounting pressures, with recession fears hitting a two-year high and concerns over energy costs and supply chain disruption rising sharply, according to iwoca's latest SME Expert Index. 

The survey found that 70% say their SME clients are worried about the conflict's impact on energy prices, with over three-quarters (78%) expecting disruption to supply chains to negatively impact SMEs' performance.

Over half (54%) of finance brokers now say their SME clients are worried about the prospect of a recession, the highest level since Q3 2023 and up from 42% in Q4 2025. Separately, 70% of brokers say SMEs are concerned about rising energy prices, and 78% expect supply chain disruption to negatively impact small businesses' performance.

Running costs emerge as SMEs’ top concern

Running costs have risen to the top of SMEs' list of concerns with 54% of brokers citing this as small businesses’ top concern, above the 48% average across 2025. Meanwhile, 12% cite high interest rates, and 7% say lack of access to finance is the biggest concern for small business owners.

With CPI inflation already at 3.4% according to the Office for National Statistics’ data for March 2026, brokers are pessimistic about the prospect of a let-up. Almost three-quarters (74%) of brokers predict CPI inflation will remain above 3% by the end of 2026, with 32% expecting it to top 3.5% — well above the Bank of England’s 2% target.

Brokers expect SMEs’ demand for finance to cool

This uncertain outlook is also dampening SMEs' appetite for borrowing, with 22% of brokers forecasting demand for finance to fall, the highest figure since iwoca began tracking this question in 2022 — while just 57% expect demand to rise, down from 74% in Q4 2025.

Colin Goldstein, Chief Commercial Officer, UK at iwoca, commented: "These numbers reflect what we're hearing from brokers - small businesses are worried, and the concerns are stacking up. Costs, inflation, supply chains: none of these have easy fixes. What SMEs can control is making sure they have the right financial backing to absorb shocks and keep moving. That's where we come in, and it's where we're focused."