Authors: Tim Chance Colin Cunningham

Key insights

  • The UK economy regained some momentum in mid-2026, supported by a modest recovery across several sectors.
  • However, this improvement is not yet consistent. Inflation, global supply chain disruptions and geopolitical tensions are raising operating costs, while elevated borrowing costs constrain investment.
  • UK businesses continue to prioritise cash flow protection, cost control and selective investment over rapid expansion.
Elevated view of the City of London at dusk

The UK economy is showing signs of improvement in 2026. However, this recovery isn't being felt evenly across the business community. Many businesses are still grappling with weak cash flow, late payments and uneven demand. The result is a market where growth opportunities exist, but financial stress remains concentrated in specific sectors and supply chains.

The Office for National Statistics estimated that UK gross domestic product (GDP) grew by 0.4% in the second quarter of 2026, following growth of 0.6% in the previous quarter. The services sector recorded the strongest growth at 0.5%, while construction output increased by 0.3%. The wider production sector overall showed no growth, although manufacturing output within the sector rose by 1.0%1.

This improvement was also reflected in business investment, which increased by 1.7% in the second quarter and was 0.8% higher than a year earlier2.

Following Andy Burnham's appointment as Prime Minister in July 2026, the government has emphasised economic growth, support for UK industry, greater local decision-making and measures to address cost-of-living pressures as key priorities. Businesses will now be looking to the Autumn Budget on 28 October 2026 for greater clarity on the government's approach to taxation, public spending, business support and growth3.

Meanwhile, businesses continue to operate in a challenging economic environment. Inflation and elevated borrowing costs are constraining the recovery and influencing spending and investment decisions.

The UK Consumer Prices Index (CPI) inflation fell from 3.3% in March to 2.6% in June but remained above the Bank of England's 2% target4. The Bank of England expects inflation to rise again later in 2026 due to higher global energy prices5

Cash flow remains a central business concern. According to Atradius' B2B Payment Practice Trends in the UK 2026 report, 68% of UK B2B sales are made on credit, while around two-thirds of businesses face late payments, affecting roughly 25% of invoiced B2B turnover6.

Tim Chance, head of Trade Credit at Gallagher, says, "UK businesses remain focused on preserving cash and controlling costs, but global pressures continue to challenge improvements at home. In an interconnected market, disruption elsewhere can quickly affect supply chains and credit risk, and these pressures often take time to unwind."

Against this backdrop, the recovery remains mixed across sectors and businesses. Although several sectors showed signs of recovery, the benefits weren't felt evenly across the market. Recent insolvency and financial-distress data show that smaller and financially stretched businesses in construction, retail, hospitality and manufacturing remain vulnerable to high costs, weaker cash flow and payment delays.

Insolvencies and companies in distress

UK insolvency levels have started to stabilise but the improvement offers only limited reassurance. There were 1,946 registered company insolvencies in August 2026, almost unchanged from July (1,931) but 3% lower than August 2025. However, insolvency volumes remain elevated by historical standards, suggesting many businesses are still operating under considerable financial pressure7.

Commenting on the trend, Chance says, "UK insolvencies have eased slightly, but they remain high by longer-term standards. Distressed businesses are still only just managing to trade, leaving them vulnerable to economic uncertainties."

Chance notes that financial stress is no longer confined to traditionally vulnerable sectors, with failures now occurring across industries previously considered more resilient.

Industries with the highest number of insolvencies (July 2025-June 2026)

Industries Number of insolvencies
Construction 3,805
Wholesale and retail trade 3,463
Accommodation and food service activities 3,233
Administrative and support service activities 2,196
Professional, scientific and technical activities 1,930
Manufacturing 1,857

Source: Commentary - Company Insolvency Statistics June 2026 - GOV.UK, 17 July 2026

Insolvencies have begun to reduce slightly across most major sectors, but pressure remains concentrated in industries facing thin margins, high input costs and weaker demand. Between July 2025 and June 2026, construction recorded 3,805 company insolvencies, accounting for 17% of cases where industry information was available. This was the highest number recorded among all industries during the period6.

Sectors that are under the most pressure

UK insolvency levels have shown early signs of easing, but the number of financially distressed businesses continues to rise. This suggests that some firms may be continuing to trade despite cash flow challenges and cost pressures, indicating that insolvency risk could remain present for certain businesses.

The latest Begbies Traynor Group (BTG) Red Flag Alert report classifies these businesses into two separate groups. At the end of the second quarter in 2026, 674,030 businesses were experiencing 'significant' financial distress, up 1.1% year on year. A separate 53,756 businesses were in the more severe 'critical' financial distress category, an increase of 9.0% from the second quarter of the last year8.

Significant distress by regions

Financial distress remains a nationwide concern. Although London recorded the highest volume of businesses in significant distress, large numbers were also reported across the South East, Midlands and North West, highlighting the broad reach of current economic and operating pressures.

Region Number of businesses
London 204,851
South East 111,832
Midlands 80,499
North West 72,079
South West 45,948
Yorkshire 45,645
East of England 42,919
Scotland 31,788
Wales 16,264
North East 12,000
Northern Ireland 10,153

Source: Red Flag Alert Q2 2026, 21 August 2026

According to Tim, "Businesses can no longer insulate themselves from events elsewhere in the world. Financial pressure now extends beyond traditionally vulnerable sectors, and disruption can quickly spread through interconnected supply chains, affecting businesses across the wider economy."

Key industries in focus

Insurance market update

UK market conditions and insurer appetite — the view from our Trade Credit Specialists

The UK trade credit insurance market remains favourable for buyers, with strong competition, readily available capacity and no broad withdrawal of cover. Limited new-business volumes are intensifying competition between insurers, keeping rates steady even as late payments, insolvency risk and wider economic uncertainty remain elevated.

"For buyers, the market appears highly attractive with competitive rates and levels of cover. However, this current combination may prove difficult to sustain over the longer term.," Tim Chance says.

Insurers are generally willing to cover businesses across most of the sectors, but they emphasise loss history, risk profile and limits required. However, placing insurance for the construction and retail sectors remains challenging. Even a gradual increase in claims across sectors could result in insurers reviewing pricing more closely. In the event of large losses, some insurers may consider actions such as higher premiums, tighter underwriting approaches or changes to credit limits.

Premium rates and claims trends

Premium rates remain under pressure as insurers compete for a limited pool of new business. Pricing for some mid-market risks has fallen significantly over the past two to three years, while insurers are also offering substantial credit limits to win business. These conditions continue to benefit buyers, but the combination of lower premium income and higher exposure is creating an increasingly fragile balance.

Claims activity has remained relatively subdued despite rising payment delays. Businesses are delaying payments to preserve cash, but debts are still being settled before they develop into claims. This longer-than-usual lag is helping to keep pricing competitive, although it may also signal claims pressure further down the line if economic conditions deteriorate further.

Staying ahead of credit risks

Cautious businesses can look to replace economic and financial assumptions with current information and act before payment problems become losses. Five key steps that businesses can take today are:

Gallagher's Trade Credit team partners with businesses to structure solutions aligned to their risk appetite and commercial objectives, ranging from whole turnover and catastrophe cover to targeted protection for key accounts, single risks, specific contracts or fraud. Contact us today.

Author Information

Tim Chance

Tim Chance

Managing Director, Trade Credit

Sources

1"GDP First Quarterly Estimate, UK: April to June 2026," Office for National Statistics, 13 Aug 2026.

2"Business Investment in the UK: April to June 2026 Provisional Results," Office for National Statistics, 13 Aug 2026.

3"Andy Burnham's first speech as Prime Minister: 20 July 2026," GOV.UK, 20 Jul 2026.

4"Consumer Price Inflation, UK: June 2026," Office for National Statistics, 22 Jul 2026.

5"Monetary Policy Report - July 2026," Bank of England, 30 Jul 2026.

6Ungaro, Silvia. "B2B Payment Practices Trends in the UK 2026," Atradius, 3 Jun 2026.

7"Commentary - Company Insolvency Statistics June 2026," GOV.UK, 17 Jul 2026. 

8"Red Flag Alert Q2 2026 Figures Released," BTG, 21 Aug 2026.

9"Construction Output in Great Britain: June 2026, New Orders and Construction Output Price Indices, April to June 2026," Office for National Statistics, 13 Aug 2026.

10"S&P Global UK Construction PMI," S&P Global, Jul 2026. PDF file.

11"S&P Global UK Manufacturing PMI," S&P Global, Jul 2026. PDF file.

12"Retail Sales, Great Britain: June 2026," Office for National Statistics, 24 Jul 2026.

13"World Cup Lifts Pubs but Restaurant Sales Dip in Flat June for Hospitality," RSM, 23 Jul 2026.

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