# UK business activity slows to three-month low amid Iran war inflation pressure

By Katie Horne — 2026-09-23

Katie Horne, banks relationship manager at Flagstone, believes energy prices are the biggest concern for businesses.

She said: “Recent research by Flagstone among 1,000 UK SMEs found that 37 per cent of businesses rank energy prices among their top three financial challenges – making energy the single biggest concern across businesses of all sizes and the majority of industries, topping the list in nine of the UK’s 12 regions.

“Unlike households, businesses do not benefit from the domestic energy price cap, leaving many SMEs more directly exposed to movements in wholesale markets when their contracts come up for renewal.

“For UK SMEs, the impact can extend far beyond the price of filling a vehicle or heating a premises. Higher oil and gas prices can feed through into electricity, transport, logistics, manufacturing, packaging as well as the cost of materials and stock, creating another layer of inflation throughout business supply chains.

“Businesses were already struggling with the cumulative cost of doing business before the latest energy shock. Nearly a third (32 per cent) of SMEs facing financial pressures say these issues have caused them to reduce hiring plans or cut headcount, while 31 per cent have changed or delayed their growth plans and 30 per cent have postponed strategic decisions.

“Energy is not a discretionary cost. Whether you run a factory, restaurant, shop or office, you need to keep the lights on and the business running. When those bills rise, SMEs have few places to hide.

“Energy pressure isn’t happening in isolation. SMEs are simultaneously absorbing higher labour costs, National Insurance, business rates, materials and other operating expenses. Another sustained energy shock risks becoming the straw that breaks the camel’s back for businesses already operating on tight margins.

“SMEs cannot control global energy markets, geopolitical events or what happens in the Strait of Hormuz. But the Government can look at how exposed smaller firms are to those shocks and whether the tax and levy burden on business energy is making the problem worse. The SMEs we speak to want business energy costs to be a Treasury priority in this October’s Budget.

“The leaders of SMEs are brimming with workable ideas to solve the industry-wide problems they face. Whether that means exploring new measures to bring down costs or reshaping business rates to be more responsive, let’s hope the new Chancellor and his team are in listening mode this October.”

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