At a time when many UK businesses are focusing on recovery, growth, and future planning, a wave of new geopolitical unrest is casting a long shadow over economic stability. In recent months, tensions have intensified globally, with the conflict between Iran and Israel drawing new international concern. Combined with ongoing instability in Ukraine, continued fallout from supply chain disruptions, and rising protectionist policies, the effect on the global economy is becoming harder to ignore.
While these events may seem distant, the consequences are likely to be felt much closer to home, including by small and medium-sized businesses across the UK.
Rising energy and commodity prices
The Middle East remains a critical source of the world’s oil and gas. Any escalation between Iran and Israel risks disrupting key shipping routes or oil production infrastructure. This uncertainty alone is often enough to drive up energy prices. As we have seen in previous global tensions, such price rises quickly feed through to higher transport, logistics, and production costs. For many UK businesses, particularly in manufacturing, construction, and food distribution, this can put already thin margins under further strain.
Currency fluctuations and investor unease
Periods of global instability tend to trigger cautious behaviour from international investors. This often results in sharp movements in exchange rates as funds are pulled from riskier markets. For UK importers, a weakening pound means that goods sourced from abroad become more expensive. Exporters might benefit in the short term, but volatility makes forward planning much more difficult. Businesses with overseas suppliers or clients may need to reassess pricing models, supply agreements, or risk management strategies.
Wider inflationary pressure
The lingering effects of the pandemic, Brexit-related disruption, and the Ukraine war had already set inflation on an upward path. Renewed conflict in the Middle East could keep inflation higher for longer by extending global supply chain difficulties and feeding further energy and food price increases. If inflation persists, businesses may face further interest rate increases, adding to the cost of borrowing and slowing down consumer demand.
What action can businesses take?
While UK firms cannot influence global events, they can take sensible steps to build resilience. Reviewing cost structures, securing supply chains, planning for currency swings, and building up cash reserves are all prudent measures. Speaking to your accountant about stress testing and scenario planning may also be worthwhile in today’s uncertain environment.
Preparation is not panic; it is good governance.