Since late February, the ongoing conflict in the Middle East has contributed to sustained disruption across energy markets and global supply chains. While geographically distant from the UK, the effects are increasingly being felt by businesses, particularly through energy pricing uncertainty, higher logistics costs and shifting inflation expectations.
These pressures are no longer short‑term. Instead, they are becoming structural cost risks. If disruption persists, the financial impact on UK businesses could mirror – or potentially exceed – the energy shock experienced following the invasion of Ukraine. For many business owners, this brings a renewed focus on cost exposure and operational resilience.
Energy costs: a delayed but significant risk
Many UK businesses remain protected by fixed energy contracts, which has helped to stabilise costs in recent months. However, this protection is temporary and, in some cases, may be masking the scale of the risk ahead.
As contracts expire, businesses are likely to face volatile market rates. Rather than a gradual increase, some may experience a sudden and material rise in costs, placing immediate pressure on margins and cash flow.
With no clear indication that government support will be reintroduced should prices rise further, it may be prudent to plan on the basis that no intervention is forthcoming. Reviewing energy arrangements ahead of contract end dates can help business owners assess whether fixing early – even at higher rates – offers greater certainty than remaining exposed to future volatility.
Interest rates: fewer guarantees going forward
Inflation expectations have also shifted. While earlier projections suggested a return to the Bank of England’s 2% target during 2026, more recent forecasts indicate renewed upward pressure, with headline inflation potentially rising towards 3.5% in the third quarter, partly driven by higher energy costs.
In a notable signal, the Bank of England’s Monetary Policy Committee voted unanimously this month to hold the base rate at 3.75, lowering expectations of rate cuts and suggesting borrowing costs may remain higher for longer.
For businesses, this has implications in two key areas:
- Variable‑rate borrowing, where repayment costs can increase quickly
- Refinancing risk, particularly for businesses approaching the end of fixed‑rate loans agreed in a much lower interest‑rate environment
Engaging with lenders early can help businesses better understand their options and reduce the risk of last‑minute refinancing decisions.
Supply chains: incremental pressure, real consequences
Since February, disruption to key global shipping routes has continued to place pressure on freight capacity and logistics costs, with goods rerouted through longer or less efficient channels.
Even businesses that do not import directly can be affected. Suppliers further up the chain face higher transport and insurance costs, which are gradually passed on. Over time, this can result in higher input costs and increased pressure on prices and margins, often emerging incrementally rather than all at once.
Because these pressures build gradually, their impact can be underestimated until profitability is affected.
Areas business owners may still be able to influence
While global events remain out of our control, there are practical areas that may still warrant review:
- Certainty where possible
Fixing energy costs or interest rates ahead of contract expiry can help reduce exposure to sudden increases. In volatile conditions, predictability can be an important consideration. - Supply chain resilience
Reviewing reliance on individual suppliers, route exposure and credit terms can help mitigate the risk of future disruption. - Margin visibility
Clear insight into profitability by product or service line supports more informed pricing decisions if cost pressures persist. Cloud accounting systems can support this by providing more up‑to‑date management information, helping owners identify margin pressure earlier. - Use of credit information
An up‑to‑date credit profile can support access to funding, improve supplier terms and provide flexibility. Utilising credit data – including through our partnership with Capitalise – can help business owners better understand their credit position and potential financing options.
Reviewing resilience as pressures evolve
Although these challenges have been developing for several months, their full financial impact has yet to be felt by many businesses. Those who monitor risks and review arrangements ahead of contract expiries or refinancing points are often better placed to manage future uncertainty.
For business owners, this may be an appropriate point to reflect on exposure across energy costs, borrowing and supply chains, and to consider whether existing arrangements remain fit for purpose as economic conditions continue to evolve.
