Small business confidence improved in Q1, rising to -53 from -71 in the previous quarter – but remained negative for the eighth consecutive quarter, according to the Federation of Small Businesses (FSB). Rising costs were reported by 87% of firms, with tax flagged as the biggest driver of cost increases for the fourth consecutive quarter. The analysis also saw more firms say revenues were falling than rising, while more firms plan to cut staff than hire. The FSB is lobbying the Government to deliver late-payment legislation and for help to reduce business costs. Ministers recently announced new powers for the small business commissioner to investigate poor payment practices and large companies will be given a 60-day deadline to settle invoices.

UK financial services have bounced back at the start of 2026, according to the Confederation of British Industry (CBI). Nearly two-thirds of firms reported growth, a stark contrast to the 38% negative balance in December 2025. This turnaround is the fastest in 30 years. Bank share prices have surged, aided by higher interest rates and despite an £11bn redress scheme linked to the motor fiance scandal. John Cronin, a banking analyst at SeaPoint Insights, said: “The strength of activity observed in the first quarter is underpinned by supply-side factors in terms of improved credit availability and demand-side factors in the context of strong household and business financial resilience.” He went to warn, however, that “conditions can change rapidly and the impact of the Middle East turmoil could quickly impact on the improved sentiments noted in the survey.”

Manufacturers in the UK are set to face an additional £939m in business rates this year, according to Make UK, which says this will put 25,000 jobs at risk. The trade body highlighted that despite the manufacturing sector contributing about 10% to the economy, it pays over 20% of business rates revenues. Verity Davidge, policy director at Make UK, said that the increase “couldn’t come at a worse possible time,” warning that it is “set to hammer one of the Government’s key strategic sectors, which is already facing existential threats from increased energy and employment costs which are completely out of their control.” She added that the business rates system is “outdated” and a “blunt instrument that leaves manufacturers paying disproportionately more than other sectors relative to their size.”

The new tax year brings a reset of allowances but also a series of stealth tax rises, with experts saying that 2026/27 offers an opportunity to maximise tax breaks before further changes arrive. Inheritance tax relief on business and agricultural assets is now capped, with bigger changes coming in 2027/28 when unused pension funds will also be taxed. This is also the final year for the full £20,000 cash ISA allowance, which will be cut to £12,000 from April 2027 to encourage more investing. Louise Halliwell, group savings director at Kent Reliance, said: “For savers, the year ahead presents a ‘use it or lose it’ opportunity.” Meanwhile, dividend taxes are rising, venture capital trust relief is being reduced, and frozen income tax thresholds will continue to pull more people into higher tax bands.

Charles Moore in the Telegraph says the introduction of Making Tax Digital (MTD) for Income Tax has sparked frustration among freelancers and landlords. MTD requires quarterly reporting of income and expenses, increasing the workload significantly. The new system, he notes, mandates the use of MTD-compliant software, adding further costs. Mr Moore says there is “something particularly dangerous about the state’s computer power in relation to tax,” while highlighting that the national system could be cyberattacked, blocked, taken down, or suffer power cuts.

The Times looks at the potential impact of the ongoing conflict in the Middle East on the UK economy, warning that it is severely disrupting global oil and gas markets. The piece says that while UK gas supplies remain stable, rising fertiliser prices and potential helium shortages threaten agriculture and technology sectors. KPMG analysis suggests that if the conflict lasted until the end of the year, headline inflation could potentially rise closer to 7%. Yael Selfin, chief economist at KPMG UK, says: “The longer this conflict continues, the more likely it is to impose larger costs on the UK economy.”

The UK could see a £30bn annual boost by 2045 if defence spending rises to between 3.5% and 5% of GDP by 2035, according to analysis by EY. Prime Minister Sir Keir Starmer last year pledged to spend 5% of GDP on national security by 2035. EY analysis, based on forecasts from the Office for Budget Responsibility and GDP projections, estimates that raising expenditure to the Government’s 3.5% target would require an additional £31bn of real-terms spending by 2035, while meeting the 5% target would require an additional £77bn. Peter Arnold, UK chief economist at EY, said: “If spent appropriately, increased defence budgets provide a dual opportunity to bolster UK security and generate lasting economic benefits.”

Small firms in the UK are rationing heating oil as prices have more than doubled due to the ongoing conflict in the Middle East. The Federation of Small Businesses (FSB) reports that many SMEs, particularly in rural areas, are facing severe financial strain, describing the situation as “savage.” With 17% of rural SMEs not connected to the gas grid, they are particularly vulnerable. Chancellor, Rachel Reeves has accused heating oil suppliers of “price gouging,” prompting the Competition and Markets Authority to investigate. The FSB has urged the competition watchdog to include SMEs in its investigation and “weed out brokers that are pushing firms into long-term deals on bad terms.”

Analysis by Dealogic shows that the value of private equity buyouts dropped sharply in the first quarter, falling 36% to $172bn, as market uncertainty and shifting investor sentiment stalled dealmaking. The decline has been driven largely by geopolitical instability, particularly the Middle Eastern conflict, which has made firms hesitant to commit to new acquisitions. At the same time, growing concerns about the disruptive impact of AI on software businesses have further dampened confidence. This has also affected the private credit market, where many loan portfolios are heavily exposed to tech companies, prompting investors to shift towards safer, more liquid assets. Executives describe current conditions as highly turbulent, warning that both the economic fallout from geopolitical tensions and the longer-term impact of AI could further reduce deal activity in the coming months. The downturn follows a brief recovery in late 2025, when global dealmaking exceeded $900bn. However, that momentum has now stalled, with private equity exits also falling by about a third to $162bn.