UK SMEs Fear Recession Amid Geopolitical Tensions and Rising Costs

A recent report by UK fintech lender iwoca reveals that small and medium-sized enterprises (SMEs) are facing heightened economic uncertainty, with recession fears reaching their highest level in two years. According to the SME Expert Index, 54 percent of finance brokers report that their clients are worried about an economic downturn, a sharp increase from 42 percent in late 2025. This anxiety is primarily driven by the ripple effects of the conflict in the Middle East, which has escalated energy prices and threatened supply chains. Specifically, 70 percent of brokers noted concerns over energy costs, while 78 percent anticipate supply-chain disruptions will harm business performance. Inflation remains a persistent challenge, with the Consumer Price Index at 3.4 percent in March 2026, significantly above the Bank of England’s target. Consequently, running costs have become the dominant worry for SMEs, surpassing interest rates and access to finance. This cautious sentiment is impacting borrowing behavior, with brokers predicting a slowdown in demand for external funding. The findings highlight the need for proactive financial planning and flexible funding options to help smaller firms navigate ongoing global and domestic headwinds.