Economic optimism falls as 7 in 10 report increased costs from Iran war, nearly a third passing on costs to customers

 A new survey by Ipsos shows that business economic optimism in the UK has taken a hit since February, with businesses feeling the squeeze of geopolitical tensions. Seven in ten (70%) report experiencing increased costs due to the Iran war, prompting many to pass costs onto customers or reduce costs, such as renegotiating or switching suppliers. 

Despite these economic headwinds, the Labour Party maintains its lead as the party with the best policies for managing the economy, businesses, and people in work, while satisfaction with political leaders remains low across the board.

Key findings include: 

•    Business decision makers’ economic optimism is falling: The net economic optimism score has dropped to -23, down from -15 in February. 
•    Businesses are reporting that the Iran war is driving up costs: 70% report facing increased costs as a result of the Iran war, with nearly half (48%) experiencing cost increases of 5% or more.
•    Labour leads on the economy: Labour (25%, +5) has extended its lead over the Conservatives (18%, -5) and Reform UK (18%, -4) on having the best policies for managing the economy.
•    EU preferred over US for trade: 46% believe Britain should prioritise building a closer trade relationship with the EU, even if it means increasing barriers with the US (25%). 

Economic Outlook and Business Sentiment

Businesses have become more pessimistic about the economy since February. Net business economic optimism has fallen to -23 (from -15 in February), with half (49%) expecting the economy to get worse, and only 26% saying it will get better. Overall concern about the country's economic outlook remains steady but high, with 81% expressing concern (compared to 80% previously).

The outlook for businesses’ financial conditions has also worsened. Three in ten (30%) now say business financial conditions will get worse, up from 25% in February. This brings the net score for business financial outlook to -1, a sharp drop from +12 earlier this year. 
When asked what the Government's top priorities should be, businesses point to:
•    Help with the cost of energy (32%, no change since February)
•    Cutting business taxes (27%, -9 since February)
•    Closer ties with the EU (21%, +6 since February)

The Impact of the Iran War

Business leaders and decision makers are reporting that the geopolitical instability is having a direct impact on the UK. 70% report experiencing increased operating costs due to the Iran war, with 48% seeing increases of 5% or more. 

To cope with these pressures, businesses that have been impacted report taking several measures:

•    33% are reducing input costs (e.g. renegotiating or switching suppliers)
•    31% are passing on at least part of the cost increases to customers
•    23% are accessing financial support (e.g. grants, loans, government schemes)
•    22% are reducing staff costs (e.g. reducing hours or freezing recruitment)

Best Policies and leaders

Labour continues to be seen as the party with the best policies across several key areas:

•    Managing the economy: Labour 25% (+5), Conservatives 18% (-5), Reform 18% (-4)
•    For Britain’s businesses: Labour 23% (+3), Reform 21% (-2), Conservatives 19% (-2)
•    For boosting international trade: Labour 25%, Reform 19%, Conservatives 17%
•    For people in work: Labour 27% (-2), Reform 21% (-2), Conservatives 14% (-5). Notably, the Green Party has seen a 7-point surge on this metric, rising to 14%.

However, satisfaction ratings for major political figures remain largely negative. Keir Starmer sits at a net satisfaction score of -12 (v -13 in February), while Rachel Reeves is at -20 (v -21 in February). Kemi Badenoch sits at -5 (down from -3), and Nigel Farage has seen a drop to -3 (down from +7). Ed Davey and Zack Polanski are the only leaders in positive territory, both sitting at +3.

International Trade: EU vs. US

When looking at international relations, the EU remains the UK's most valued trade partner. 37% consider the EU as the most important trade partner, followed by the US (30%), and China (14%). However, among Reform UK supporters, the US is viewed as the most important (38%), though 31% still say the EU. Similarly, 35% say the EU will be Britain’s most important trade partner in five years’ time, 28% that it will be the US and 14% China. 

Nearly half of businesses (46%) say Britain should prioritise building a closer trade relationship with the EU, even if it means increasing barriers to trade with the United States. 

Only 25% say the UK should prioritise the US over the EU, while 29% say both or do not know. Despite this, nearly half (47%) still believe in the "special relationship" between the US and Britain, with 20% disagreeing.

Rebecca Klahr,  Head of Economy and Environment Research at Ipsos, said:

These latest figures highlight a growing anxiety from businesses about the UK's economic trajectory, heavily exacerbated by the ripple effects of the Iran conflict. 
With 7 in 10 facing rising costs, it is no surprise that energy support and tax cuts are top of mind for businesses. 
While the Government has seen slight improvements in the perception of its policies, leader satisfaction remains stubbornly low across the political spectrum. 
However, Labour continues to hold a clear advantage over the Conservatives and Reform UK when it comes to economic and business policies.

Notes: 

For more information, please contact: Owen Evans 
Director of Media and Partnerships 
Email: [email protected]
Phone: 07814211915

Technical Note:

Ipsos interviewed a representative sample of 1,200 senior decision makers, representing UK businesses with annual turnover of £250,000 or more. Polling was conducted online between 30 April – 18 May 2026.  Data are weighted to match the profile of the population. All polls are subject to a wide range of potential sources of error.