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UK business confidence has sunk to a near four-year low as firms count the mounting cost of the Iran war.
Accountancy group ICAEW has reported that weaker expected sales activity, rising costs pressures, and growing geopolitical turbulence was weighing on bosses’s minds.
Geopolitical risks were the biggest growing challenge to performance with 65% of companies citing this as an issue, likely reflecting the fallout from the Iran conflict and increasing domestic uncertainty as a change of prime minister looms large.
Labour costs (58%) were the second biggest challenge amid the notable minimum wage increase during the survey period, followed by energy costs with the percentage of firms highlighting this issue rising sharply from 35% in Q1 to 55% in Q2. The closure of the Strait of Hormuz and rising fuel prices meant the share of businesses citing transport worries nearly doubled from 11% to 20%, the highest for over two years.
Rapid decline to low $70s may be an over-correction - Near term oil prices have declined by over 15% following the mid-June US-Iran ceasefire agreement that has enabled the gradual resumption of transit through the Strait of Hormuz and reduced the threat of a fresh escalation in the military conflict.
In our view, the sharp drop in oil prices has been driven by the release of oil tankers previously stuck in the Gulf back onto the global market, including Iranian cargoes that are currently sanction free.
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