Mark Barrie, Head of debt advisory at accountancy firm Azets, believes the war, which began in February, is likely to prompt unexpected interest rate rises, which will also curb investment. He noted that prior to the conflict, Bank of England (BoE) base rate cuts were anticipated throughout 2026, with rates expected to fall toward 3% by year-end or early 2027.

He said: “It is a tough time for SME businesses what with this and the knock-on effects of all the other pressures they are currently facing adding up to a big squeeze on margins and it could well lead to casualties. I speak to business owners every day of the week – with sectors such as manufacturing, logistics, haulage, hospitality and construction particularly affected – and there is a general feeling of uncertainty.”

He added that many businesses had anticipated cheaper borrowing and are now facing a reduced appetite for debt alongside fewer lending options.

Mr Barrie added: “The worst case scenario now is that we are going to see some casualties, some businesses which will be seen in the insolvency and administration numbers. Some just think that loading additional debt – to take on new projects or new staff or for marketing or whatever else – is the answer out of this, but some of them just can’t afford the debt they are acquiring and this will be the final nail in the coffin.

“Others will argue that if they do not do it the business is finished anyway so it’s one last throw of the dice, but some shouldn’t be rolling the dice – they should be calling it a day or streamlining the business.”

Mr Barrie highlighted that increased funding costs would be added to the myriad other pressures currently being faced by SMEs – including rapid rises in fuel costs, increased employer National Insurance contributions, new business rates, pension contributions, minimum wage increases, higher energy costs, supply chain issues and continuing cautious consumer spending.

These pressures have been reflected in global trade metrics. The Drewry World Container Index (WCI) increased 6% to US$2,712 per 40ft container in late May, mainly due to higher freight rates on the Asia to Europe trade route. This was the highest figure since July 2025, although still less than the 12-month high of $3,543 in June 2025.

A survey from the British Chambers of Commerce has revealed that 80% of firms report an existing or expected impact from the Iran conflict, including energy price increases, shipping disruption and rises in raw material costs.

The manufacturing sector was seeing the biggest impact, with 68% of firms already affected by the unrest and 23% expecting an impact. Three-quarters of businesses expected their energy bills to increase over the next 12 months, with most expecting the rise to be by more than 20%, and over a third (36%) of firms said they were expecting difficulties paying their energy bills over the next 12 months.