UK firms halt investments and hiring as Iran war pushes up costs, bosses warn

The worsening fallout from the Iran war is forcing businesses to halt their UK investment and hiring plans, bosses have warned, as Britain enters a renewed period of political and economic instability.More than two months into the US-Israeli war on Iran, leading surveys of UK employers showed companies were increasingly prioritising cost management over growth as rising costs and global uncertainty weigh on confidence.According to a survey by the accountancy firm BDO, more than half of medium-sized businesses said higher energy and fuel costs, combined with supply chain pressures, were the biggest challenges they face as the Middle East conflict continues.Amid rising domestic political uncertainty as Keir Starmer’s Labour government braces for a leadership challenge, business leaders said companies were holding back from investing in Britain.Richard Austin, a partner at BDO, said instead of focusing on expansion, UK businesses were “struggling to absorb the latest economic shock in an uncertain global and political backdrop”.The survey comes as the chancellor, Rachel Reeves, travels to Paris for meetings with G7 finance ministers to coordinate action between the world’s most powerful nations to limit the economic fallout from the war.Reeves is expected to this week announce the next phase of support for British households and businesses to soften the impact.However, bosses warned the damage from the Middle East conflict was steadily rising. A separate report from the Chartered Institute of Personnel and Development, the professional body for HR, also found that UK employers were prioritising cost management over growth.Almost 60% of employers cited costs as their key priority as rising energy and supplier bills compound higher Labour costs prompted by last year’s step-up in employer national insurance and increases in the legal minimum wage.Another report from the Recruitment and Employment Confederation showed job creation was under threat, with the number of vacancies in the UK for April down 7.7% on the level in March to 711,733 and down by 5.6% from April last year.Job postings for pilots, travel agents and train drivers had fallen the most, while postings for nannies and au pairs, as well as sales executives and couriers, had increased.Neil Carberry, the chief executive of the REC, said: “The Labour market is entering a more unpredictable phase after a solid start to the year.”He said that momentum had eased in April after a good start and this reflected “growing sensitivity to the conflict in the Gulf” as well as the timing of the Easter holidays.Combined with “sudden domestic political uncertainty”, he warned hiring could take a further hit in the coming months.“The likely outcome is a more uneven hiring environment, with some firms pulling back while others continue to support underlying demand,” he said.BDO said there could be some “bright spots” for the UK economy emerging amid the Middle East conflict as some companies seek to protect their supply chains in the light of geopolitical uncertainty.Almost a third of business leaders told BDO they are looking to prioritise UK-based suppliers and a further 28% are considering moving production to the UK or closer to home, potentially providing a boost to British manufacturers. Britain’s economy has so far defied expectations for a weak first quarter amid the escalating fallout from the Iran war.Figures from the Office for National Statistics showed growth of 0.3% in gross domestic product in March.It was a sign that the Iran war, which broke out on the final day of February, did not immediately affect activity for businesses and consumers as badly as expected, despite soaring oil and gas prices owing to the closure of the strait of Hormuz.However, economists are pessimistic about the outlook for the rest of the year, saying some of the growth in the first three months could be the result of businesses and consumers stocking up on goods, fuel and raw materials ahead of possible supply shortages and higher borrowing rates.