Credit Focus – Edition 4: Navigating the UK Economy, Insolvencies and Insurance Market Trends

The S&P UK Construction Purchasing Managers' Index (PMI), a monthly survey of 150 firms, reported on February this year that business activity continues to fall for the 14th successive month.⁷ Firms have reported a sharper decline in new orders, as well as disruptions to site activity and delays to project delivery owing to unusually wet weather.

Cost pressures remain a significant challenge, with purchasing cost inflation reaching its highest level in seven months. Performance continued to vary by sub‑sector. For example, residential construction remained the most vulnerable, with activity reducing further in February due to fewer project starts and tighter funding conditions.

However, overall optimism in the sector is on the rise. Business expectations for the year ahead rose to their strongest level since late 2024, with a growing share of firms anticipating a positive change in consumer demand leading to greater sales and overall business activity. Around 42% of participants in the S&P UK Construction PMI's survey forecast a rise in output levels during the year ahead.⁷

UK construction company insolvency figures⁴

The S&P UK Manufacturers survey 2026 shows that business optimism has so far reached its highest level in more than a year as demand conditions begin to stabilise.⁸ Production increased in consumer and investment goods, reflecting stronger domestic and export demand.

However, growth hasn't been evenly spread across the sector, and the overall outlook remains mixed. Intermediate goods (materials and components) output struggled to reverse its downward trend, highlighting ongoing supply‑chain vulnerabilities. Manufacturers remain exposed to delays and disruption across global and regional supply networks, particularly for energy‑intensive inputs and critical components.

In addition to this, businesses remain alert to the risk of renewed energy price volatility linked to geopolitical tensions. Manufacturers also continue to face rising employment costs and weak order books at home, even though exports and selected investments improve.

UK manufacturing company insolvency figures⁴

Retail sales volumes showed modest improvement through 2025 but remain below pre‑pandemic levels.⁹ Progress across the sector has been uneven, with sales growth largely reliant on promotional strategies like price discounts and special offers.

Inflation remains a hurdle for most households, with the consumer price index (CPI) hovering at 3.4% in December 2025.¹⁰ Additionally, the rising unemployment rate, which reached 5.2% in Q4 2025, weakened consumer confidence.¹¹ As a result, consumers are spending cautiously, prioritising essential purchases and limiting discretionary outlays.

The pressure was reflected in the sector's traditionally strong 'Golden Quarter' (the year-end festive trading period) in 2025. Data from the Office for National Statistics shows that overall sales fell by 0.3% in Q4 2025 compared to the previous quarter.¹²

In addition to these challenges, the UK retail sector continues to face rising staff costs driven by higher minimum wages and increased employer National Insurance contributions.

UK retail company insolvency figures⁴

Activity across the wider UK services sector has begun to improve in the first quarter of 2026, but the recovery hasn't been entirely even across the board. Leisure and hospitality businesses continue to face difficult trading conditions amid financial pressure and the rising cost of labour.

Although pubs, cafes and restaurants continue to attract footfall, consumers are still cautious about their spending. For restaurants, wages and other costs are rising faster than sales, putting profits under pressure.

Businesses are increasingly relying on flexible work patterns and technology to keep services running while managing costs. Despite innovation and disciplined business strategies, cafes and restaurants have reported muted growth, insufficient to fully offset inflation.

There are, however, some areas of support for the travel and tourism sector. VisitBritain forecasts 45.5 million inbound visits in 2026, up by around 4% on 2025, with visitor spending expected to grow faster than volumes.¹³ After the quieter early months, things may gradually improve in major cities and popular leisure destinations. The 2026 World Cup is also expected to provide a substantial economic boost to the industry.

UK hospitality company insolvency figures⁴