Recession fears have hit a two-year high among UK SMEs, as small and medium-sized businesses continue to face mounting pressures such as rising energy costs and supply chain disruption.

The latest SME Expert Index from iwoca found that 70 per cent of finance brokers say SME clients are concerned about the impact of the conflict in the Middle East on energy prices, with 78 per cent expecting supply chain disruption to negatively impact performance.

54 per cent of finance brokers say that SME clients are worried about a potential recession. This is up from 42 per cent in Q4 2025 and the highest level since Q3 2023.

The leading concern among SMEs was reported to be running costs, with 54 per cent of brokers saying this was the top concern for their SME clients, up from an average of 48 per cent across 2025. Other concerns among SME owners cited by brokers included high interest rates (12 per cent) and a lack of access to finance (7 per cent).

The survey also found that brokers were pessimistic about the prospects of economic headwinds easing. According to ONS data for March 2026, CPI inflation already stands at 3.4 per cent. Close to three-quarters (74 per cent) of respondents to the report forecast that CPI inflation will remain above 3 per cent by the end of the year, while 32 per cent say they expect it to reach or surpass 3.5 per cent.

The headwinds facing UK SMEs are also dampening borrowing appetite. 22 per cent of brokers polled said they expect demand for finance to fall - the highest figure since iwoca began tracking this metric in 2022. While 57 per cent expect demand for financing to rise, this was down sharply from 74 per cent in Q4 2025.

Colin Goldstein, Chief Commercial Officer, UK at iwoca, said “These numbers reflect what we’re hearing from brokers – small businesses are worried, and the concerns are stacking up.”

“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.”