Business confidence is slipping, costs remain elevated and interest rates are still comparatively high, while the conflict in the Middle East adds fresh uncertainty around energy prices and inflation. For owner managed businesses, this is very much a time to keep a close eye on cash flow and funding options, and to stay flexible as a clearer picture emerges.  

Confidence down, cash flow under pressure

Recent surveys show UK business confidence has fallen further, with tax and regulation now the most frequently‑cited concerns. According to the British Chambers of Commerce, almost a third of firms reported a tightening in cash flow over the last three months, compared with less than a quarter seeing an improvement.

ICAEW’s latest Business Confidence Monitor also notes that although profits growth picked up slightly in late 2025, investment and research and development plans remain subdued, with many businesses cautious about committing cash. Borrowing costs have eased from their peak but remain higher than before the pandemic, which means the return on any investment should be carefully justified.

What can you do now?

• Review your recent cash flow trends, not just profit, to spot any early signs of strain.
• Revisit forthcoming spending plans and check they are realistic if income growth is slower than you’d planned.

Interest rates, borrowing costs and access to finance

The Bank of England has held Bank Rate at 3.75% in its latest decision, after a series of cuts from the highs reached in 2023. That has fed through into somewhat lower rates on new SME loans: Bank data show the effective interest rate on new borrowing for smaller businesses has fallen to just over 6%, the lowest nominal level since early 2023, although in real terms it is still higher than pre‑Covid norms.

Net SME borrowing has started to grow again, but only modestly, and many businesses remain wary of taking on extra debt. Commentators note that while the worst of the monetary tightening appears to be behind us, firms are still dealing with elevated finance costs and tougher questions from lenders.

What can you do now?

• List all existing borrowing (rates, terms, renewal dates) and identify where refinancing or renegotiation could reduce risk or cost.
• If you expect to need funding later in 2026, start preparing now: up‑to‑date management accounts, cash flow forecasts and clear assumptions will all help your case with lenders.

A softer labour market – but not cheaper overheads

At the time of writing, unemployment has risen to 5.2%, its highest level for almost five years, and wage growth has cooled to around 4.2%, signalling a softer labour market. That may ease recruitment difficulties for some roles, but it does not automatically mean lower employment costs, given previous increases in the National Living Wage and employer National Insurance.

For many owner managed businesses, the combination of higher wage floors, pension contributions and other costs still represents a significant outlay each month. If sales soften, those fixed or semi‑fixed costs can quickly eat into cash reserves, even where headline staff numbers are stable.

What can you do now?

• Check your staffing model against realistic revenue forecasts; ensure hours and headcount line up with expected demand.
• Scenario‑plan what happens to your monthly cash flow if sales drop by, say, 10% while wage costs remain the same.

Energy, the Middle East conflict and working capital

Renewed conflict in the Middle East has already unsettled global energy markets, pushing up oil and gas prices and causing volatility in financial markets. Analysts have emphasised that much of the impact will depend on how long the disruption lasts and whether key routes, such as the Strait of Hormuz, remain affected, but even short‑term spikes in wholesale prices will affect UK fuel and energy bills, which have jumped considerably.

These higher energy and transport costs tend to ripple through supply chains, raising the cost of moving goods and, in some cases, extending delivery times. At the same time, households faced with higher bills often cut back on discretionary spending, which can hit sectors such as retail, hospitality and leisure, and may delay purchasing decisions in business‑to‑business markets too. 

At this stage, no one can say how long the conflict will last or what the full impact on the UK economy will be, but it’s sensible to plan for more volatility rather than less.

What can you do now?

• Review your energy contracts, renewal dates and likely usage; consider whether partial fixes or shorter terms could balance cost and flexibility in an uncertain market.
• Map out your key suppliers, especially where products are energy‑intensive or heavily reliant on shipping, and think about alternative suppliers or buffer stock for critical items.

Practical ways to strengthen your cash flow

In this environment, the basics of cash management become even more important. 

Late payment remains a persistent issue: recent government consultation and business surveys highlight that many smaller firms are still struggling with extended payment terms and slow‑paying customers. Even a profitable business can find itself short of cash if too much money is tied up in unpaid invoices, excess stock or poorly structured finance.

There are, however, practical steps you can take to improve resilience. We’ve always encouraged clients to keep their cash flow forecasts up to date, and to understand how capital expenditure and debt repayments can affect their cash position over time; recent events prove their value!

What can you do now?

• Put in place, or update, your rolling 12‑month cash flow forecast, updated at least monthly, but weekly would be far better.
• Tighten credit control: clear payment terms, prompt and consistent chasing, and, where appropriate, deposits or staged payments.
• Review pricing and margins, particularly on energy‑intensive products or services, to ensure rising input costs aren’t silently eroding your cash.
• Consider whether working capital finance (for example, overdrafts, invoice finance or other short‑term facilities) could provide a buffer, but only where you are confident the repayments are sustainable.

Funding: planning ahead rather than reacting

Looking ahead through 2026, many commentators expect economic growth to be modest, with further interest rate cuts possible if inflation continues to fall and the labour market weakens further. This would gradually ease borrowing costs, but it is unlikely to be a rapid return to ‘cheap money’, and lenders remain cautious, especially where cash flow projections are weak.

The risk is that the Middle East conflict pushes inflation up instead, preventing interest rate cuts, and potentially driving them upwards instead.

For owner managed businesses, the priority is to ensure that any funding you arrange genuinely supports your plans rather than simply postponing problems. That means understanding how much you need, what it will cost, and how it will be repaid in a range of trading conditions.

What can you do now?

• Decide what you want funding for (bridging a short‑term gap, investing in efficiency, growth, or something else) and how success will be measured.
• Build ‘what if?’ versions of your cash flow forecast showing best, base and worst‑case trading, and check that debt service remains affordable in each case.
• Start conversations with potential funders as early as you can, so you’re not forced to accept less favourable terms under time pressure.

If you’d like help building or updating your cash flow forecasts, reviewing funding options or working through how these economic shifts might affect your plans for 2026, please get in touch and we’ll help as much as we’re able.