Israel’s war on Iran has caused steadily increasing costs for UK businesses through the prices businesses are being quoted for energy, fuel, freight, stock, imported materials and supplier contracts. The pressure appears in routine purchasing decisions, renewal notices, logistics charges and supplier emails, then works its way into margins, working capital requirements and customer pricing.
British Chambers of Commerce research published on 25 May 2026 found that 80% of surveyed firms reported an existing or expected impact from the conflict, with energy price increases, shipping disruption and higher raw material costs among the main areas of concern. The survey covered more than 800 firms, most of them SMEs, and found that 55% were already directly affected while 25% expected to be affected in future.
The commercial strain is visible in everyday operation for almost all businesses. A business that buys stock, pays for delivery, keeps premises open, runs vehicles, uses machinery or imports goods is exposed to the cost of energy and transport at several points in the trading cycle. If those costs increase while existing orders, customer agreements or quoted work remain fixed, the business has to use more cash to complete the same level of activity.
This is also why the issue reaches first-time buyers. Business costs influence consumer prices, wage growth, hiring confidence, mortgage affordability and deposit savings. A first-time buyer may experience the effect through higher living costs, weaker household surplus, more cautious lenders or lower confidence at work. The route from geopolitical conflict to UK housing affordability is indirect, although the commercial chain is clear.
The link to first-time buyers is especially relevant now that high loan-to-value mortgages have been launched into the market. As covered in our recent article on £5,000 deposit mortgages, low-deposit lending can help renters access home ownership sooner, although it also leaves first-time buyers with very limited equity at the point of purchase. If a highly leveraged first-time buyer loses income during a weaker employment market due to cost increases resulting from war, or needs to sell after a fall in property values due to recession, the financial risk can move quickly from affordability pressure into negative equity. In that scenario, the buyer may owe the lender more than the property is worth, leaving first-time buyers potentially owing tens of thousands of pounds to their mortgage provider, depending on resale value.
Energy is carrying the first major strain
Energy is one of the fastest routes from geopolitical risk into the UK economy because it sits inside premises costs, production costs, logistics costs and household costs at the same time. Businesses with energy-intensive operations face the sharpest pressure, although even service-led businesses are affected when commercial electricity, heating, transport and supplier costs move higher.
The BCC survey found that 75% of responding firms expected their energy bills to rise over the next 12 months because of the conflict. Within that group, 43% expected increases of more than 20%, while 36% said they expected difficulty paying their energy bills over the next year, up from around 27% at the start of the year.
Commercial energy exposure is more difficult for smaller firms because business energy bills do not have the same protection as domestic household bills. The BCC has warned that most UK firms remain vulnerable to volatile global markets, while domestic consumers receive more structured visibility through the household price cap.
That creates a planning issue for businesses approaching renewal dates or operating under variable pricing. Management needs to know when the higher cost will land, how much of it can be reflected in future customer pricing, and whether the business has enough liquidity to absorb the adjustment period. A firm with stronger cash reserves can phase pricing decisions more carefully. A firm with tighter liquidity may need to reprice more quickly, reduce discretionary spend or seek working capital support.
Shipping disruption changes the funding requirement
Shipping disruption increases costs through freight rates, delivery uncertainty, longer lead times and supplier behaviour. Businesses that depend on imported goods or components may need to place orders earlier, commit more money to stock and allow more time between purchase and sale. The funding requirement expands because cash is tied up for longer.
The BCC reported that businesses cited higher shipping costs, unpredictable routes and short-notice supplier price increases linked to force majeure, with increases ranging from 3% to 30%.
This affects cashflow through the sequence of the transaction. The supplier asks for more money, the goods take longer to arrive, the business carries more stock to protect delivery reliability, and the customer may still pay under normal terms after the sale has been completed. Each stage lengthens the period during which cash is committed inside the business.
Manufacturing is especially exposed because materials, energy, freight and production scheduling are connected. The BCC found that 68% of manufacturers were already affected by the unrest, with a further 23% expecting an impact.
A manufacturing business may still have orders, staff, customers and a viable product, while its working capital need has increased because the same trading volume now requires more cash. That distinction is important for lenders. The issue is easier to fund where the borrower can show confirmed demand, credible margins, reliable customers and a clear conversion route from stock or work in progress into cash.
Higher business costs are feeding into consumer prices
The pressure on businesses does not stay inside the business sector. When energy, freight and raw material costs rise, those increases pass directly into consumer prices. Retailers and suppliers may delay the pass-through for competitive reasons, although sustained increases usually reach the customer over time, while in sectors with limited competition, costs may increase significantly quicker.
Reuters reported on 26 May 2026 that UK shop price inflation rose to 1.2% in May, up from 1.0% in April, with disruption and rising energy costs from the Iran conflict affecting non-food categories including furniture, health and beauty.
For first-time buyers, the effect is measured through monthly surplus income. Higher prices for food, transport, energy, furniture, insurance and household goods reduce the amount left after essential spending. This weakens the ability to save for a deposit and can reduce the income available for mortgage affordability calculations.
First-time buyers are often more exposed to this pressure because they may be paying rent while trying to save. A rise in everyday costs slows deposit accumulation, especially where wages do not adjust at the same pace. The buyer’s long-term plan may remain unchanged, although the monthly route to that purchase becomes more difficult.
Mortgage affordability is linked to inflation and interest rate expectations
Mortgage affordability is sensitive to inflation because lenders, swap markets and the Bank of England all respond to the expected path of prices and rates. If energy shocks keep inflation higher for longer, mortgage pricing may remain more expensive than buyers expected, and affordability stress testing may stay tight.
The Bank of England’s April 2026 Monetary Policy Report stated that CPI inflation had increased to 3.3% and was likely to be higher later in the year as higher energy prices passed through. The Bank’s April 2026 Monetary Policy Summary also stated that inflation risks included possible second-round effects in price and wage-setting, while financial conditions had tightened since the conflict began.
The Resolution Foundation also highlighted the direct effect on British families through higher energy and fuel prices, noting that forecasts for the July 2026 energy price cap had risen to £1,973 for a typical household, 20% above its April level, while average weekly petrol prices had risen 20% above pre-war levels and diesel prices had risen 36%.
A first-time buyer’s affordability can weaken even without a change in salary. Higher household costs reduce free cash. Higher mortgage rates reduce the loan size supported by the same income. A cautious employer or weaker business environment can also affect confidence, especially for applicants with variable income, overtime, commission, self-employment income or director drawings.
Businesses and first-time buyers are connected through employment and confidence
UK businesses are central to local employment, wage stability and regional economic confidence. When smaller businesses absorb higher costs, the commercial response can include delayed hiring, tighter pay reviews, reduced overtime, lower discretionary spending and more selective investment. Those decisions affect employees who may also be renters, savers or prospective first-time buyers.
Self-employed first-time buyers and director-shareholders face a more direct connection. Mortgage lenders usually review accounts, tax calculations, bank statements, income consistency, retained profits and existing credit commitments. If supplier costs rise and margins narrow, the applicant’s mortgage capacity may be affected through lower taxable income, reduced drawings or weaker trading results.
Business owners also need to manage the interaction between company cashflow and household affordability. A director who uses personal credit to support the business may weaken their own mortgage application. A director who increases drawings to cover household costs may reduce business liquidity. A director who cuts drawings to preserve the business may reduce personal affordability. Each decision has a financial consequence beyond the immediate cash movement.
The safest position is usually created through clean records, current management accounts and clear separation between business funding and personal borrowing. Lenders respond better to structured explanations than unexplained pressure. A business that can show why costs have increased, how pricing is being adjusted and how the requested finance will be repaid is easier to assess.
Lenders will focus on the evidence behind the pressure
Lenders rarely underwrite geopolitical risk as a standalone subject. They underwrite the borrower’s numbers, repayment source, security, conduct and resilience. The conflict may explain why costs have moved, although the lender still needs to understand whether the business can manage the financial effect.
The core evidence usually sits in management accounts, bank statements, supplier communications, debtor reports, order books, energy contracts, freight quotes and customer terms. If gross margin has fallen, the lender will want to understand whether the movement is temporary, whether prices have already been adjusted, and whether customers are accepting the new pricing. If stock has increased, the lender will want to understand whether it is tied to confirmed orders or defensive purchasing. If debtor days have stretched, the lender will assess customer quality and collection history.
A viable business can still secure funding in a more difficult cost environment, although the case needs to be presented with discipline. The funding request should be linked to a defined use of funds, a realistic repayment route and a clear view of the trading cycle. A vague request for general cash support is harder to place because it gives the lender less visibility over control and repayment.
Finance should be reviewed while credit options are still available
Businesses should assess funding against the way cash moves through the business. A company that is committing more money to stock, waiting longer for goods to arrive, carrying higher supplier deposits or giving customers extended payment terms needs a facility that reflects those timings. The funding discussion should start with the purchase date, delivery date, invoice date, customer payment date and expected cash return, because those points determine whether the business needs invoice finance, working capital, asset refinance, trade support, tax funding or a longer-term loan.
The current rate environment makes early review more important. The Bank of England’s April 2026 minutes showed that the recent energy supply shock had already lifted inflation expectations, with the Q3 2026 projection 1.4 percentage points higher than in the February Monetary Policy Report. One Monetary Policy Committee member also voted to raise Bank Rate by 0.25 percentage points at that meeting, which shows that the policy path remains sensitive to inflation data.
Credit pricing can move quickly when inflation expectations change. Recent mortgage-market reporting has already shown lenders increasing rates as markets adjusted to the conflict-related inflation shock, and the Resolution Foundation noted that mortgage rates had risen by around one percentage point in March 2026, adding about £100 per month for a typical first-time buyer refixing in March instead of February. The same principle matters for businesses borrowing, because lenders price facilities according to funding costs, risk appetite, borrower conduct, affordability and the strength of the repayment route.
Businesses that know they are likely to need funding should understand their credit position now. That means checking available limits, likely pricing, security requirements, covenant expectations, personal guarantee exposure, repayment terms and whether the facility still works against forecast margins. A facility that is affordable at one rate may become less suitable if pricing rises, trading performance softens or lenders reduce appetite for sectors exposed to energy, shipping or consumer demand.
Waiting until cash pressure is urgent can weaken the borrower’s position. Bank conduct may have deteriorated, HMRC or suppliers may already be stretched, management accounts may show compressed margins, and lenders may offer lower limits or higher pricing than would have been available earlier. Early assessment does not mean drawing funds immediately; it gives the business a clear view of lender appetite, available headroom and the cost of acting if the forecast tightens.
The repayment profile should match the commercial event that restores cash to the business. Stock-led funding should be measured against the expected sales cycle. Invoice-led funding should be measured against debtor quality and collection timing. Asset refinance should be measured against the value of the asset and the business’s ability to service repayments from trading cashflow. Longer-term borrowing should be reserved for pressures that require a longer adjustment period, such as sustained increases in energy, freight or supplier costs.
Personal borrowing for business use should be treated carefully, especially for directors, self-employed applicants and first-time buyers preparing for a residential mortgage. Credit card balances, overdraft use, personal loans, late payments or unexplained transfers can all affect affordability and lender confidence. A structured business facility is usually cleaner than relying on personal credit, provided the facility is affordable, properly evidenced and aligned with the business’s cash cycle.
Practical steps for businesses
Businesses should update cashflow forecasts using current energy, fuel, freight, supplier and customer payment assumptions. The forecast should show expected cash movements over the next three to six months, including tax payments, payroll, rent, supplier commitments, debtor receipts and any energy renewal dates.
Management accounts should be kept current and supported by commentary. If margins have changed, the commentary should explain which costs moved and how the business is responding. If stock has increased, the business should explain whether the movement reflects confirmed demand, longer shipping times or strategic purchasing. If customer pricing has changed, the business should retain evidence of revised terms, customer acceptance and any phased implementation.
Businesses should speak to finance providers early where the forecast shows pressure. Funding discussions are stronger when bank conduct remains clean, HMRC payments are current, supplier relationships are intact and the use of funds is specific. Waiting until payments are missed reduces lender choice and often increases the cost of borrowing.
Directors preparing for a mortgage application should avoid mixing personal credit with business working capital without advice. Personal credit card use, overdraft reliance, late payments and unexplained transfers can weaken affordability and credit assessment. Self-employed applicants should keep tax records, accounts and bank conduct consistent, especially where trading costs are moving quickly
