Geopolitical shock impacts business activity with firms split on how to handle rising costs
In a quarter that included the intensifying of the Middle East conflict, Barclays anonymised client data from around 900,000 UK businesses comparing Q1 2026 to Q1 2025, showed the diverging ways smaller and larger firms are responding.
SMEs within Barclays Business Bank saw a modest uptick in cash inflows (+0.2 %), continuing to build savings buffers (+1.5 %) and cut borrowing (‑13.1 %)
Larger corporates within Barclays UK Corporate Bank saw a reduction in cash entering (-7.0 %) and leaving businesses (-6.1 %) as they reduced savings (-5.2 %)
These larger firms have simultaneously increased longer term borrowing (+6.9 %) and reduced shorter-term overdraft borrowing (-11.8 %), suggesting future investment plans remain intact
Businesses of all sizes are split on their pricing strategy in response to rising costs, with 37 % passing them on to customers and 32 % absorbing the impact within margins.
Meanwhile over four in five (81 %) expect revenues to increase next quarter as 83 % are confident in their prospects over the next year. Looking ahead, more than half (54 %) are planning to increase investment in the next 12 months.
Matt Hammerstein, CEO of Barclays UK Corporate Bank, said:“UK businesses are now operating in an environment where uncertainty has become the norm. Geopolitical instability and persistently high costs are feeding directly into cashflows, borrowing decisions and investment plans.
“What’s striking, however, is how businesses are responding. Rather than pulling back entirely, many are adapting to this new reality by tightening financial discipline, managing cash carefully and prioritising investment where it strengthens resilience, productivity and long-term competitiveness.”
Cyber security becomes boardroom priority
Resilience is now a key focus, with recent global turmoil putting cybersecurity at the forefront of many businesses’ investment priorities, with fewer than three in 10 (29 %) confident in their ability to respond to a major cyber incident. In response, almost seven in 10 (68 %) are planning to increase their cybersecurity investment over the next 12 months.
However, businesses are seeking to find a balance between adoption and exposure. While 82 % are confident that their cybersecurity capabilities are keeping pace, almost half (46 %) are concerned that these technologies are increasing their exposure to cybersecurity risks.
As technologies develop at pace, large businesses are eager to increase their investment, while micro businesses are adapting more slowly. More than one third (36 %) of large firms have increased cybersecurity investment since the start of 2026, falling to 26 % of smaller businesses and just 4 % of micro businesses. With additional finance, large firms say they would prioritise further cyber security (24 %) alongside AI investment (24 %).
The average amount decision makers have spent on cybersecurity to date in 2026 is £505,000. This rises significantly to £1.3million for large businesses, but falls to £134,000 for small businesses and £15,000 for micros.
Over half of firms now use agentic AI
Alongside rising cyber investment, businesses are doubling down on AI and automation to improve efficiency and offset cost pressures.
More than half of businesses (52 %) believe AI and automation has improved their productivity, with employees now spending less time on administrative tasks (38 %), becoming faster at decision-making (34 %) and spending more time on higher value work (31 %). The way businesses are using AI has evolved too, with six in 10 (61 %) now using agentic AI to some extent in their operations.
Abdul Qureshi, head of Barclays Business Banking said: “SMEs are navigating higher costs and ongoing uncertainty, which continues to weigh on day-to-day decisions. While larger firms push ahead with longer-term borrowing, many smaller businesses are focused on building cash buffers and closely managing their financial position. At the same time, AI is starting to present tangible opportunities for SMEs, particularly where it can help improve productivity and make everyday tasks more efficient.”