Business confidence in Australia fell 1 point to negative 6 in July, as uncertainty over the Middle East conflict and oil prices continued to weigh on the business outlook, National Australia Bank (ASX:NAB) said in a Tuesday report.

Business conditions rose by 1 point to 4 index points, driven by modest improvements in profitability and employment.

Confidence rose across most Australian states in July, led by sharp gains in South Australia and Tasmania, while business conditions strengthened significantly in Victoria and Western Australia.

The July survey shows that measures of cost and price growth rose, but remained well below the pace seen at the peak of the Middle East conflict in March.

Businesses continue to face mounting cost pressures, with labor costs rising to their highest level since January 2025 and purchase and product prices returning to pre-conflict levels.

Capacity utilization rose sharply in July, climbing 0.9 percentage points to 83%, while mixed signals from capital spending intentions and forward orders pointed to continued weakness in the outlook.