Fintech firm iwoca indicated that UK small and medium-sized enterprises are confronting heightened economic uncertainty, with concerns about a potential recession reaching their highest level in two years. This shift is driven largely by the ripple effects of the conflict in the Middle East, which is pushing up energy prices and threatening supply chains, according to the latest SME Expert Index from UK fintech lender iwoca.
Finance brokers responding to the survey reported that 54 percent of their SME clients now express worries about an economic downturn.
This figure represents the highest level recorded since the third quarter of 2023, when it stood at 65 percent, and marks a sharp rise from 42 percent in the final quarter of 2025.
At the same time, 70 percent of brokers noted that small businesses are increasingly anxious about escalating energy costs linked to the Middle East situation.
Even more starkly, 78 percent anticipate that ongoing supply-chain interruptions will harm SME performance across the UK.
Inflation adds another layer of pressure. Current data from the Office for National Statistics shows the Consumer Price Index at 3.4 percent for March 2026.
Looking ahead, nearly three-quarters of brokers—74 percent—expect CPI to remain above 3 percent by the close of 2026, while 32 percent forecast it climbing past 3.5 percent.
These projections sit well above the Bank of England’s 2 percent target, signaling persistent cost challenges for smaller firms.
Running costs have now overtaken other issues to become the dominant worry for SMEs, with 54 percent of brokers identifying them as the top concern—higher than the 48 percent average seen throughout 2025.
By contrast, just 12 percent flagged high interest rates as the primary issue, and only 7 percent pointed to restricted access to finance.
This cautious mood is already affecting borrowing patterns.
Brokers predict a noticeable slowdown in demand for external funding: 22 percent now expect finance applications to decline, the highest such forecast since iwoca began monitoring the metric in 2022.
Meanwhile, only 57 percent anticipate growth in demand, a significant drop from 74 percent in the previous quarter.
Colin Goldstein, Chief Commercial Officer for the UK at iwoca, observed that the numbers align closely with direct feedback from brokers working with small businesses.
“Small businesses are worried, and the concerns are stacking up,” he noted.
“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.”
The research findings underscore a broader picture of resilience testing for UK SMEs.
While external pressures mount, the data highlights the importance of proactive financial planning.
With running costs at the forefront and borrowing appetite cooling, many small firms may need flexible funding options to navigate the coming months and maintain stability amid ongoing global and domestic headwinds. iwoca’s index continues to serve as a key barometer for how brokers view the SME landscape, offering insights into the challenges shaping the UK’s smaller businesses.