Business leader confidence improves despite Iran conflict concerns

The IoD Directors’ latest Economic Confidence Index, which measures business leader optimism over prospects for the UK economy, rose to -53 in May 2026 from -64 in April.

Business leader confidence in their own organisations also rose, to +23 in May from +8 in April. This is the indicator’s highest reading since August 2024 (+23).

The majority of the underlying indicators also improved, with investment intentions rising to -1 in May from -9 in April. Revenue expectations rose to +27 from +17, Export expectations rose to +9 from +3, whilst cost expectations fell marginally to +84 from +85. Headcount expectations remained unchanged at -3

Negative factors included concerns about global economic conditions, which was the area that saw the biggest increase in citations, with 43% of businesses indicating they were having a negative impact, up from 33% (moving to 4th in the negative impact rankings from 7th)

UK economic conditions (75% of businesses) remained the most significant reported concern, relatively unchanged from 77% in February 2026. Employment taxes (54%) and business taxes (47%) continued to be of significant concern but fell from 63% and 54% respectively, whilst the cost of energy remained stable at 35% (from 34% in February)

Concerns over a global economic slowdown rose to the top of the rankings, with two-thirds of businesses (65%) indicating that it was one of the three most significant global risks, up from 52% in February, whilst concerns over geopolitical tensions remained high (51%, down slightly from 52%) as one of the top three risk factors.

There was also concern about cybersecurity, which remained in third place at 45%, down from 49%, whilst concern about the US administration fell to 30% from 39%.

Anna Leach, Chief Economist at the Institute of Directors, said “In May, optimism among business leaders for the UK economy over the coming year improved for the second successive month. However, economic conditions remained challenging with three quarters of firms putting the UK economy as the top factor having a negative impact on organisations. Cost expectations remained elevated and firms continued to be reluctant to expand, amidst widespread frustration with tax and regulatory burdens, particularly employment. Investment plans improved, but that simply left firms on balance neither increasing nor decreasing investment spending plans – somewhat weaker than the series average. Meanwhile headcount plans remained in slightly negative territory for the year ahead.

“Amidst what feels like an eery calm in broader business conditions, it’s the quarterly questions on global risk which highlight rising concern over the Iran conflict. Two thirds of business leaders put a global economic slowdown at the top of their risk list, with half worried about geopolitical risks, while cybersecurity concerns also remained elevated. With cost pressures likely to rise further in the coming months and financial conditions set to tighten, operating conditions will become more challenging for business. To support businesses in driving the resilient growth needed, urgent action is needed to tackle the rising cost of doing business in the UK, through bringing down energy and regulatory costs, and reforming business rates.”