Growing economic uncertainty is creating new challenges for UK businesses as global shocks continue to ripple through supply chains, energy markets and trade. While domestic demand has provided some support, rising inflationary pressures and higher operating costs are expected to weigh more heavily on businesses and households over the coming months. With growth forecast to remain modest and corporate insolvencies projected to rise, organisations should prepare for a more demanding environment, particularly in sectors most exposed to cost increases and weakening demand.
The British economy is increasingly shaped by a more fragile global backdrop following the shocks outlined in Coface’s June 2026 Risk Review, including higher energy prices and disrupted supply chains.
- Global growth is slowing while inflationary pressures are re‑emerging, limiting governments’ ability to support economic activity
- Before these headwinds, the UK entered 2026 on relatively solid footing, supported by resilient domestic demand and stable labour market conditions
- Inflation has been temporarily contained by the energy price cap in Q2 2026, offering short-term relief for households
- However, inflation is expected to rise again, reinforcing downside risks to the United Kingdom
- Household consumption has held up better than expected so far, but is likely to weaken in the second half of the year
- Overall, the British economic outlook points to modest growth of 0.7% in 2026 and 0.8% in 2027, highlighting limited momentum amid rising pressures
Domestic resilience softens but remains intact (for now)
Despite mounting external pressures, the UK entered 2026 on relatively solid footing. Growth dynamics at the start of the year were supported by resilient domestic demand and a still-stable labour market after weakening last year.
Inflation has been temporarily contained in the second quarter by the energy price cap, limiting the impact on real incomes in the short term. However, this relief is expected to prove temporary, with price pressures likely to build again later in the year.
Although business and consumer confidence have weakened compared with 2025 levels, household consumption has so far held better than feared. That said, spending is expected to become more subdued in the second half of 2026 as higher costs take their toll and uncertainty persists.
Overall, UK economic growth is projected to remain modest, at 0.7% in 2026 and 0.8% in 2027, reflecting a gradual loss of momentum amid tighter conditions.
UK Corporate outlook: resilience fading as pressures broaden
The UK corporate landscape has shown surprising resilience in early 2026. Insolvencies fell by around 6% year-on-year in the first five months of the year, suggesting that many firms have so far weathered the initial phase of global disruption – some even helped by higher orders in the short term due to fears of rising prices.
However, this trend is unlikely to persist. As cost pressures, particularly energy, financing and supply chains, continue to diffuse across the economy; business conditions are expected to deteriorate.
Coface forecasts that corporate insolvencies will rise by approximately 3% over the full year, signalling a turning point after the relative stability observed in 2025 and early 2026. This reflects a broader global pattern, where rising costs, longer delivery times and tighter financial conditions are already pushing insolvencies higher as highlighted in the latest Coface Risk Review.
UK Sector risks: vulnerabilities becoming more visible
The impact of these pressures will not be evenly distributed. Instead, it is concentrated in sectors already exposed to structural weaknesses or cost sensitivity:
- Energy‑intensive industries (e.g. paper, metals) face renewed pressure from rising input costs
- Low-margin sectors, particularly health and hospitality, remain vulnerable to wage and cost increases
- Transport is increasingly exposed to both weaker demand and higher fuel costs
- Reflecting these trends, Coface has implemented targeted downgrades in the United Kingdom:
- The paper sector has been downgraded from high to very high risk, in line with broader European trends
- The transport sector has been downgraded from medium to high risk
Transport illustrates the dual impact of global and domestic pressures. While air travel had previously shown strong momentum, rising jet fuel prices are expected to push up ticket costs and dampen demand. At the same time, weaker global trade flows and higher fuel prices are weighing in on maritime and road haulage activity.
Conclusion: resilience under pressure
The British economy outlook in mid‑2026 is best characterised as resilient, but under growing strain.
The energy price cap along with some short-term support from policy measures and earlier growth momentum has helped cushion the initial impact of global shocks. However, these buffers are gradually fading. Rising inflation, a more challenging global environment, and spreading cost pressures are set to weigh more heavily on both businesses and households in the months ahead.
With growth expected to remain subdued and insolvencies projected to rise, the outlook points to a period of gradual cooling rather than outright contraction - but with clear downside risks concentrated in vulnerable sectors.
