Middle East conflict drives economic confidence to new record low

The IoD Directors’ Economic Confidence Index, which measures business leader optimism over prospects for the UK economy, fell to its lowest ever reading of -76 in March 2026, from -63 in February.

Business leaders’ confidence in their own organisations also fell, to -2 in March from +1 in February.

Underlying indicators also largely worsened with cost expectations rising to +88 in March from +84 in February, the second highest reading on record (+89 in Sept 2025). Investment intentions fell to -13 from -6 (investment intentions have been net negative every month since August 2024). Revenue expectations dipped to +13 from +15. Export expectations dipped to +2 from +5. Wage expectations rose to +47 from +45, whilst headcount expectations rose to ±0 from -11.

The survey also asked business leaders about their greatest economic security concerns, finding that 71% are concerned about geopolitical tensions affecting investment, markets or business partners, 69% are concerned about energy price volatility, 60% are concerned about cyber-attacks or technical sabotage and 58% are concerned about supply chain disruption.

In terms of the factors driving directors’ outlook for costs over the year ahead, the largest factors were labour (including employment taxes) listed by 71%, followed by supply chain inflation (51%) and energy (39%).

When asked about the conflict in the Middle East, 59% of business leaders stated that it has harmed their organisation so far, with around a third saying the impact was neutral so far.

Anna Leach, Chief Economist at the Institute of Directors, said “The outbreak of conflict in the Middle East has driven down the confidence of business leaders to a new record low. Manufacturers are at the sharp end, with 69% reporting a negative impact so far, compared to a cross-sector average of 59%. Impacts being reported include sharp increases in fuel and shipping costs, rising material prices – such as petrochemicals – and delivery delays. Across all sectors, the general increase in uncertainty is once again delaying decision-making, as many wait to see how the conflict evolves. Financial conditions are reported to have tightened, with investors pulling out of deals. Some offsetting positivity is reported in the renewables sector, where enquiries have understandably increased. But the overall effect is that economic activity has weakened from its already subdued level, while inflationary pressures once again are building.

“More muted changes in underlying data, such as investment intentions and revenue expectations mirror the likewise moderate changes in oil and gas prices despite the unprecedented closure of the Strait of Hormuz. The longer and more severe the hit to global energy supplies, the harder businesses and the broader economy will be impacted.

“The government is right to be alert to the risks of another cost shock to the economy, and has been agile in giving vital support to households exposed to heating oil costs. But it should avoid framing price increases as profiteering when many businesses are facing genuine and significant cost pressures from energy, logistics and supply chain disruption.”