Struggling to absorb the latest economic shock in an uncertain backdrop
Two months after the outbreak of war between the United States, Israel, and Iran, British businesses find themselves in a posture of stillness — not paralysis, but the deliberate pause of those who sense the ground shifting beneath them. Energy costs have surged, supply chains have frayed, and the labour market is quietly contracting, with job vacancies falling sharply as employers turn inward toward survival rather than outward toward growth. In this moment, the ancient tension between ambition and prudence is being resolved, for now, in favour of caution — a collective breath held while governments scramble to respond and the world waits to see what the conflict's next chapter brings.
- Over half of UK medium-sized firms are now consumed by the same crisis: energy bills and fuel costs have spiked sharply since the Iran war began, and supply chains that once felt reliable have become a source of daily anxiety.
- The labour market is losing momentum fast — job vacancies dropped 7.7% in a single month, and nearly 60% of employers say cost control has overtaken growth as their defining priority.
- The political ground at home is unstable too, with Keir Starmer's government facing an internal leadership challenge at precisely the moment businesses most need steady signals from Westminster.
- Chancellor Rachel Reeves is in Paris coordinating with G7 finance ministers, with new support for households and businesses expected — but the relief has not yet arrived where the pressure is already acute.
- A modest 0.3% economic growth figure for March may be a mirage — likely driven by pre-war stockpiling rather than genuine expansion, a one-time buffer that will not repeat.
- A quiet reshoring impulse is stirring, with nearly a third of business leaders now eyeing UK-based suppliers — a potential lifeline for British manufacturers, though still a possibility rather than a movement.
Two months into the conflict between the United States, Israel, and Iran, British business leaders have shifted into a defensive crouch. They are not expanding, not hiring — they are watching costs and waiting. Surveys across the country tell the same story: more than half of medium-sized UK firms say their biggest challenge is the same combination of spiking energy bills, fuel costs, and tangled supply chains. The accountancy firm BDO found that companies have turned their focus away from growth entirely, with one partner describing businesses as struggling to absorb yet another economic shock against an already uncertain global backdrop.
The labour market is feeling it too. Job vacancies fell 7.7% in April to just over 711,000 openings — down more than 5% from the same month a year earlier. The Chartered Institute of Personnel and Development found nearly 60% of employers now rank cost control as their top priority, squeezed by energy bills, higher supplier costs, and domestic policy changes including increased employer national insurance contributions. The Recruitment and Employment Confederation's chief executive warned the market is entering a more unpredictable phase, with some sectors — aviation, travel, rail — contracting sharply, while demand for couriers, nannies, and sales staff has quietly risen.
The domestic political backdrop deepens the unease. Keir Starmer's government is bracing for an internal leadership challenge just as the Middle East crisis intensifies, and the combination of geopolitical and political uncertainty could push hiring down further in the months ahead. Chancellor Rachel Reeves is in Paris this week with G7 finance ministers, expected to announce new support measures — but the damage is already visible. The UK's 0.3% growth in March, while better than feared, may simply reflect a pre-war rush to stockpile goods and fuel — a one-time effect that will not repeat.
There is one thread of possibility woven through the caution. Nearly a third of business leaders say they are now prioritising UK-based suppliers to reduce geopolitical exposure, and more than a quarter are considering bringing production closer to home. If that impulse solidifies into action, British manufacturers could see a genuine and lasting benefit. For now, though, it remains a consideration rather than a commitment — and the prevailing mood is one of restraint, cost-cutting, and a labour market that has lost its footing at precisely the wrong moment.
Two months into the conflict between the United States, Israel, and Iran, British business leaders are pulling back. They're not expanding. They're not hiring. They're holding tight, watching costs, waiting to see what happens next.
The evidence is mounting in surveys across the country. More than half of medium-sized UK firms now say their biggest problem is the same thing: energy bills and fuel costs have spiked, supply chains are tangled, and nobody knows when either will improve. The accountancy firm BDO found companies have shifted their entire focus away from growth. Richard Austin, a partner there, described the mood plainly: businesses are "struggling to absorb the latest economic shock in an uncertain global and political backdrop."
It's not just energy prices. The labour market is cooling too. In April, the number of job vacancies in Britain fell 7.7% compared to March—dropping to 711,733 openings. That's also down 5.6% from April a year earlier. The Chartered Institute of Personnel and Development found that nearly 60% of employers now list cost control as their top priority, squeezed by rising energy bills, higher supplier costs, and the increased employer national insurance contributions and minimum wage increases from the previous year. Neil Carberry, chief executive of the Recruitment and Employment Confederation, warned the labour market is entering "a more unpredictable phase." Some sectors are hit harder than others: postings for pilots, travel agents, and train drivers have fallen sharply, while demand for nannies, au pairs, couriers, and sales staff has actually risen.
The political backdrop makes it worse. Keir Starmer's Labour government is bracing for an internal leadership challenge just as the Middle East crisis deepens. Carberry said the combination of geopolitical tension and domestic political uncertainty could push hiring down further in the months ahead. The likely outcome, he suggested, is an uneven jobs market—some firms pulling back entirely while others continue hiring to meet underlying demand.
Chancellor Rachel Reeves is in Paris this week meeting with G7 finance ministers to coordinate a response. She's expected to announce new support for households and businesses, an attempt to cushion the blow. But the damage is real and visible now. The Office for National Statistics reported that the UK economy grew 0.3% in March, a modest figure that surprised some economists who expected worse. The Iran war erupted on February 28, so that growth may reflect businesses and consumers rushing to stock up on goods and fuel before prices climbed further or supplies tightened—a one-time boost that won't repeat.
There is one potential silver lining. Nearly a third of business leaders told BDO they're now prioritizing UK-based suppliers to protect themselves from geopolitical risk. Another 28% are considering moving production back to Britain or closer to home. If that shift happens at scale, it could provide a genuine boost to British manufacturers. But for now, that remains a possibility, not a trend. The immediate reality is caution, cost-cutting, and a labour market that has lost momentum just as political uncertainty at home compounds the instability abroad.
Notable Quotes
Businesses are struggling to absorb the latest economic shock in an uncertain global and political backdrop— Richard Austin, partner at BDO
The labour market is entering a more unpredictable phase after a solid start to the year— Neil Carberry, chief executive of the Recruitment and Employment Confederation
The Hearth Conversation Another angle on the story
Why does an Iran war matter to a British factory owner or HR manager?
Because it closes the Strait of Hormuz. Oil and gas prices spike. Energy bills double. Suddenly the cost of running a business jumps by thousands a month, and nobody knows if it'll stay there or get worse. That uncertainty freezes decision-making.
But the economy grew in March. Doesn't that suggest things are holding up?
It does on the surface. But economists think that growth came from panic buying—businesses and consumers rushing to stock up before prices climbed higher. That's a one-time event. It doesn't mean the underlying economy is healthy. It means people are bracing for impact.
So what do companies actually do when they freeze hiring?
They stop replacing people who leave. They delay expansion plans. They negotiate harder with suppliers. They look at their energy contracts and sweat. Some start thinking about moving production back to the UK to avoid supply chain risk, but that takes months or years to execute.
The surveys mention domestic political uncertainty too. How much of this is the Iran war versus Keir Starmer's problems?
Both matter. The war is the immediate shock—energy costs, supply chains, global uncertainty. But when your government is also unstable, when there's talk of a leadership challenge, investors get nervous about policy direction. You're not just managing one crisis; you're managing two.
Is there any good news in this?
Some firms are genuinely looking to bring production back to Britain or shift to UK suppliers. If that happens at scale, it could help British manufacturers. But right now it's just a third of companies thinking about it. The immediate story is caution, not opportunity.