Could 2026 be a turning point for struggling businesses?

New analysis from the Resolution Foundation suggests that 2026 could bring sharper pressure on underperforming UK firms, particularly so-called “zombie” companies that have been surviving but not thriving.

According to its latest outlook, many businesses are facing what it describes as a “triple whammy”:

• Prolonged high interest rates
• Elevated energy costs
• Successive increases to the minimum wage

For firms that were already operating on tight margins, this combination may prove decisive.

What are “zombie” firms?

Economists use the term “zombie firms” to describe businesses that generate just enough cash to survive but not enough to grow, invest or meaningfully reduce debt.

Persistently low interest rates after the 2008 financial crisis allowed many heavily indebted businesses to continue trading despite weak performance. Cheap borrowing reduced immediate pressure, but it also meant labour and capital remained tied up in less productive areas of the economy.

Now, with operating costs higher and borrowing no longer ultra-cheap, that cushion has largely disappeared.

Productivity and disruption

The report suggests that 2026 could mark a turning point for the UK economy after decades of weak productivity growth.

Productivity (output per hour worked) matters because it drives wages and living standards. Higher productivity allows businesses to pay more without simply passing on costs.

However, the Foundation cautions that any productivity improvement may come with short-term disruption. If weaker firms exit the market, unemployment may rise before the benefits of reallocation are felt elsewhere.

Unemployment already rising

UK unemployment is already at its highest level outside the Covid period for a decade.

The headline rate reached 5.1% in October, with many employers delaying hiring decisions ahead of Rachel Reeves’s Autumn Budget.

Business groups argue that higher taxes and rising wage costs are discouraging recruitment, particularly among SMEs.

Interest rates and operating costs

Although the Bank of England has cut base rates six times since August 2023, businesses are still operating in a cost environment well above pre-pandemic levels. Those rate cuts followed 14 consecutive increases, and the cumulative effect continues to be felt in loan servicing and financing costs.

Add energy costs and wage pressures into the mix, and it’s clear why some firms are struggling.

Confidence remains fragile

Separate research from the British Chambers of Commerce reinforces the picture.

At the end of 2025, business confidence fell to a three-year low. Tax and inflation were cited as the most significant concerns. Fewer than half of firms expect turnover to rise in the year ahead, and investment plans are being scaled back rather than expanded.

That combination of cautious hiring, lower investment and rising costs, creates a more fragile economic backdrop heading into 2026.

What this means in practice

Headlines about “zombie firms” can sound dramatic, but the practical question for most business owners is simpler:

• Are margins under pressure?
• Is debt affordable at current rates?
• Can costs be absorbed without damaging cashflow?
• Is investment still realistic this year?

In tighter conditions, clarity becomes more valuable than optimism. Understanding your cost base, reviewing borrowing, and forecasting realistically for the next 12 months often makes the difference between reacting late and adjusting early.

If you’re unsure how exposed your business might be to these pressures, it’s worth reviewing the numbers before they review you.

If you’d like to talk through your position and options for 2026, we can do exactly that.