UK SME recession fears hit two-year high, finds iwoca

Recession fears among UK SMEs have climbed to their highest level in two years as ongoing conflict in the Middle East fuels concerns around energy prices, inflation and supply chain disruption, according to the latest SME Expert Index from iwoca.

More than half (54%) of finance brokers now say their SME clients are worried about the prospect of a recession, up sharply from 42% in Q4 2025 and the highest level recorded since Q3 2023, when the figure reached 65%.

The research highlights growing anxiety across the SME sector as geopolitical instability continues to impact operating costs and business confidence. Seven in ten brokers (70%) said SMEs are concerned about rising energy prices linked to the Middle East conflict, while 78% expect associated supply chain disruption to negatively affect small business performance.

Running costs have now emerged as SMEs’ biggest concern, with 54% of brokers identifying them as the primary issue facing small businesses, above the 48% average recorded throughout 2025. By comparison, 12% cited high interest rates as the main concern, while just 7% pointed to lack of access to finance.

Inflation expectations also remain stubbornly high. With CPI inflation already standing at 3.4% in March 2026, according to Office for National Statistics data, nearly three-quarters (74%) of brokers believe inflation will still be above 3% by the end of 2026. Almost a third (32%) expect CPI inflation to exceed 3.5%, significantly above the Bank of England’s 2% target.

The uncertain economic backdrop is also beginning to weigh on borrowing appetite among SMEs. More than one in five brokers (22%) expect demand for finance to fall – the highest figure recorded since iwoca began tracking the metric in 2022. Meanwhile, 57% still expect demand to increase, but this has fallen notably from 74% in Q4 2025.

Colin Goldstein, Chief Commercial Officer, UK at iwoca, said: “These numbers reflect what we’re hearing from brokers – small businesses are worried, and the concerns are stacking up. Costs, inflation, supply chains: none of these have easy fixes.

“What SMEs can control is making sure they have the right financial backing to absorb shocks and keep moving. That’s where we come in, and it’s where we’re focused.”