UK businesses are entering 2026 with growth expected to remain subdued and consumer confidence deteriorating, a mix that typically results in tighter household spending, slower sales cycles and increased pressure on cash flow. Economists expect 2026 to be another soft year for UK growth, after 2025 pressures that included tax rises and the impact of US tariffs, while inflation reportedly rose to 4.9% by October, driven largely by food costs, and unemployment reached 5.1% as firms cut headcount in response to wage costs and the adoption of Artificial Intelligence. A KPMG survey suggests sentiment has weakened sharply, with nearly 60% of respondents saying the economy is deteriorating, up from 43% earlier this year, and Capital Economics is projecting 1.4% growth in 2025 easing to 1% in 2026, reinforcing expectations of a sluggish environment that tends to elevate late payment risk for companies selling on credit.
On the policy and tax side, HMRC is preparing a more assertive enforcement stance in 2026, with plans to invest an additional £555m per year to expand compliance capacity and technology, aiming to raise £5.1bn annually by the end of the Parliament and to recruit 5,000 new compliance officers by 2029/30. At the same time, Making Tax Digital has been criticised by a retired accountant as “ill considered,” with concerns that replacing a straightforward annual self-assessment process with up to six submissions a year, and the requirement for HMRC-approved software, will increase admin, raise costs and strain taxpayers who may be unaware of the changes. For small and medium-sized enterprises, a Lloyds Bank survey indicates businesses are keen to unlock productivity gains from Artificial Intelligence but are prioritising people over platforms, with 35% planning to increase training budgets and 33% expecting to invest directly in Artificial Intelligence, alongside Rachel Reeves’ £1.5bn skills package targeting digital and Artificial Intelligence roles.
Sector-specific risks are also in focus, with fashion retailer LK Bennett filing for administration in what may be its second collapse since 2019, after latest accounts showed a £3.2m loss and borrowings of nearly £22m, and auditors warning on going-concern uncertainty and potential covenant breaches. Pharmacy chain Jhoots Chemist, which has over 100 outlets, faces potential administration after Lloyds Bank sought a High Court application relating to £670,000 in unpaid fees, with reported debts above £5m and a near £1.9m loss in its latest year. In capital markets, the London Stock Exchange recorded 11 IPOs in 2025, raising £1.9bn compared with £700m in 2024, and private equity sales using continuation vehicles are forecast around $107bn (£79.2bn), up from $70bn in 2024, underscoring a more active deal environment that can quickly alter ownership structures and payment behaviours. Meanwhile, global indicators such as China’s official manufacturing PMI rising to 50.1 in December from 49.2 in November, record London rents cited at £2,736 and sharp commodity moves, including gold rebounding to about $4,335/oz and copper hitting a record near $13,000/tonne, add further volatility to the backdrop for credit management and cash-flow planning.
