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Summary

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* The report uses data from the Quarterly Economic Survey carried out from 11/05/26 and 08/06/26 in the second quarter (Q2) of 2026.

Wider Economic Context

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Results

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Commentary

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Falling sales and confidence, rising price pressure – Q2 survey data reveals tough trading for East Midlands businesses

In addition to data shown in the above graphs, respondents were asked for open feedback.

Of those that responded, the sentiment was one of ongoing economic instability, driven by National Insurance hikes pushing up employment costs, business rates and wage mandates.

The challenges cited are likely to have been exacerbated by global volatility – notably the Middle East conflict, with rising fuel prices and inflation set to increase across the year – while international trade has experienced a period of uncertainty around tariffs.

East Midlands Chamber Director of Policy and Insight Richard Blackmore said:

The timing of the results gives us useful insight into the extent to which the war – with the raised energy costs, and inflation widely expected to go the same way – has added to what was already fragile confidence among businesses; something we saw throughout the whole of 2025.

Shortly before the conflict, inflation was showing signs of easing. Now, forecasts suggest the opposite. It is not surprising that inflation has not moved from being the number one concern of business.

The combination of the high cost of doing business and the sense of uncertainty the Middle East conflict has brought are likely to have contributed to the fall we’ve seen in expectation of increased profitability or turnover. The continued hesitancy to invest suggests businesses are mitigating against high costs by reducing outgoings where they can.

While there has been a very slight increase in attempts to hire staff, the majority are still reporting that they struggled to find suitable applicants, underlining the need to fix skills shortages. When it comes to training and machinery, investment has been pulled back – not a healthy sign; more of a protective measure.

The Chamber’s Framework for Growth – a landmark publication we published at the end of 2025 – calls on policymakers to urgently prioritise specific actions like wider energy cost relief; a review of business rates and skills investment. Since the time of publication, the case to implement these asks – especially with the impact of the Middle East conflict and how it has pushed up costs, squeezing businesses further – has become greater, so it’s essential policymakers step up and act.

University of Leicester School of Business Professor of Finance and FinTech Mohamed Shaban said:

Q1 provided cautious optimism, with a positive, though declining, State of Economy Index, a turnaround in UK sales, and stronger overseas order momentum. Most of these gains were reversed in Q2. The sharp decline in the index and worsening cash flow and domestic orders indicate that businesses are absorbing cumulative cost increases, such as National Insurance contributions, business rates, and wage pressures, while facing weaker domestic demand and greater global uncertainty. The survey also highlights the disproportionate implications on SMEs and concerns about policy misalignment.

However, some resilience remains. The smaller negative balance on overseas sales, suggest that export-oriented firms continue to adapt and diversify. The larger Q2 sample confirms these pressures are widespread, not isolated.

Locally, the East Midlands maintains key structural advantages in manufacturing, which represents a much higher share of regional GDP than the UK average, and in logistics. These strengths continue to support international engagement despite domestic challenges.

Nationally, the UK economy is contending with the pass-through of higher energy prices following the escalation of conflict in the Middle East. CPI inflation rose to 3.3% in March 2026, prompting the Bank of England to hold Bank Rate at 3.75% while revising near-term growth forecasts downward. Underlying GDP is still projected to record modest positive growth in Q2, and any stabilisation in energy markets could create conditions for future monetary easing.

Internationally, the energy prices shock and related supply-chain disruptions have increased input costs and uncertainty for energy-intensive sectors. The region’s manufacturing base and strong connectivity position it to benefit if supply-chain diversification or nearshoring trends accelerate as firms reassess their global operations.

In conclusion, the Q2 2026 QES shows a clear decline from the more balanced position in Q1, driven by increased domestic cost pressures and global volatility and rising uncertainty. The survey also reveals adaptability, especially among internationally active firms, and modest improvements in some confidence metrics. I expect the East Midlands business community to remain resilient, but sustained progress will require coordinated action to address structural challenges in costs, skills, and policy alignment.