Headlines UK growth forecast at just 1% in both 2025 and 2026, falling behind the EU and other advanced economies by 2026 Inflation expected to peak at 3.5% in Q3 2025, and remain above the 2% target through 2026 Private sector momentum weakening, with Autumn budget and tariffs adding pressure Corporate insolvencies rising again, now forecast to increase by 3% in 2025 Three sector downgrades: automotive, chemicals, and metals now rated Very High Risk
UK Growth: Falling Behind Peers
The UK economy is forecast to grow by just 1% in both 2025 and 2026, according to Coface’s latest risk review. While this places the UK in line with other advanced economies in 2025, it is expected to fall behind in 2026, with the EU projected to grow by 1.5%. This reflects a broader loss of momentum in the UK’s private sector, exacerbated by the Autumn budget, rising tariffs, and the threat of a wider trade war.
Inflation: Elevated and Persistent
Inflationary pressures remain a key concern. Coface expects UK inflation to peak at 3.5% in Q3 2025, before gradually easing. However, it is likely to remain above the Bank of England’s 2% target throughout 2026, driven by high energy prices and structural cost pressures.
Sector Downgrades: Manufacturing Under Strain
Coface has downgraded three key UK sectors; automotive, chemicals, and metals - from High Risk to Very High Risk. These downgrades reflect both a wider European manufacturing slowdown and UK-specific challenges, including high labour and energy costs and the growing impact of tariffs. In the past year, 336 insolvencies were recorded across these sectors, nearly 25% above pre-pandemic levels, and these firms are now twice as likely to fail as the national average.
Our UK Economist, Jonathan Steenberg, expands on this pressure, highlighting the acute strain these sectors are under:
“The UK Government strategy of lowering energy costs for energy-intensive manufacturers is a welcome lifeline for these sectors which are under severe strain, with around 336 insolvencies within the industrial base of automotive, chemicals and metals in the past year, almost 25% more than the average before the pandemic. These firms are twice as likely to fail as the national average, highlighting the acute pressure they face.
Whilst there are a number of policy changes being brought forward by the Government, the British economy is still facing an uphill battle domestically and on the global stage, given its still high costs, low productivity growth and its position as a middle-sized open economy in a more isolationist world”.
Insolvencies: Rising Again
After signs of stabilisation, UK corporate insolvencies are once again on the rise. Coface now expects a 3% increase in 2025, reversing earlier expectations of a decline. This uptick is driven by tightening financial conditions, reduced pricing power, and persistent uncertainty in the global trade environment.
As a trade credit insurer covering over £600bn in global trade, Coface is often among the first to detect rising liquidity risks. This early visibility has informed our revised outlook for UK insolvencies in 2025.
Looking Ahead
Globally, Coface forecasts 2.2% growth in 2025 and 2.3% in 2026, though downside risks remain high due to geopolitical tensions and trade policy uncertainty. Nearly 80% of advanced economies saw an increase in defaults in Q1 2025, underscoring the fragile global environment in which the UK must compete.
While the UK Government’s Industrial Strategy, particularly its focus on reducing energy costs for manufacturers, is a welcome step, the broader economic picture remains challenging. The UK continues to face structural headwinds, including low productivity growth, high input costs, and a vulnerable position in global trade. You can read the full Risk Review here.
The full Country and Sector Risk report and infographics are available on the Coface website, where regular economic publications keep exporters updated on market trends. Our business risk dashboard and Urba360 tool offers invaluable insights, helping you monitor trade credit risk across countries, sectors, and millions of companies worldwide.
