July business conditions improve, confidence fragile

Michael Hayes, Gareth Spence & Sally Auld | Group Economics 

Summary

Business confidence fell 1pt (unrounded) in July after rising for three consecutive months as uncertainty around the Middle East conflict and oil prices have continued to weigh on the outlook. Meanwhile, conditions rose 1pt in July to +4 index points, driven by modest improvements in profitability and employment. Measures of costs and prices growth rose in July, but rates of growth remain well below the pace seen at the peak of the Middle East conflict in March. Nonetheless, cost pressures clearly remain an issue for business; labour cost growth, which was not affected by the outbreak of the Middle East conflict, has now risen to its highest level since January 2025, while purchase cost and product prices growth are at or above their pre-conflict levels. Capacity utilisation rose strongly in July, up 0.9ppt to 83.0% to be at levels seen at the beginning of 2026. Other measures in the survey showed mixed signals as capex intentions rose but forward orders fell; despite moving in different directions both of these measures continue to sit well below their pre-conflict levels and their respective long-run averages. Overall, despite improved outcomes relative to those seen at the peak of the impact of the Middle East crisis, the survey shows that the elevated uncertainty has continued to weigh on business confidence. Cost pressures amid a softer forward demand outlook suggest continued pressure on margins if these dynamics are sustained in coming months, consistent with a below average reading for profitability in this month’s survey. 

Next release date: 8 September 2026

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