Some sectors face greater challenges than others
The experience across industries is far from uniform.
Construction continues to record the highest levels of insolvency. Other sectors under pressure include wholesale and retail, along with accommodation and food services.
These industries typically share similar characteristics. They are more labour intensive, often operate on relatively low margins and have been disproportionately affected by increases in the National Living Wage and higher payroll taxes.
For businesses in these sectors, rising employment costs have added to existing pressures from energy prices and financing costs, making trading conditions especially difficult.
Cash reserves have become thinner, threatening liquidity
ONS survey data shows companies are generally operating with smaller cash buffers than a year ago. Around one quarter of businesses now report having less than one month’s cash reserves available, up from around one fifth in mid-2025.
At the same time, the proportion of firms holding more than six months of cash reserves has fallen from nearly 30% to just over 20%.
This indicates that many businesses have less room to absorb future shocks than they did previously. However, thinner cash reserves have not translated into widespread fears of business failure.
Only around 2-3% of firms describe themselves as being at severe risk of insolvency, broadly unchanged from last year. Most businesses continue to report either low or no perceived insolvency risk.
Taken together, the survey evidence points to some deterioration in financial resilience, but not one that suggests an imminent surge in corporate failures.
Employment remains relatively stable
Labour market data presents a more mixed picture.
Notifications of planned redundancies increased during late 2024 and throughout 2025, signalling growing caution among employers. More recent data, however, suggests conditions are stabilising. Realised redundancies have eased back from their recent highs, while employment surveys indicate that hiring activity has levelled off rather than continued to weaken.
Some uncertainty remains. Ongoing geopolitical tensions, including developments in the Middle East, may encourage businesses to delay recruitment or pause investment decisions. Nevertheless, current evidence points to a labour market that is broadly stable rather than one experiencing significant deterioration.
This resilience also supports the view that wage pressures may take longer to ease than some market participants expect.
Lenders are not signaling greater stress
The Bank of England’s Credit Conditions Survey shows lenders expect default rates to remain relatively low across businesses of all sizes. While expectations for loan defaults rose sharply during the pandemic, realised defaults remained relatively contained, and today’s outlook is considerably more stable.
Importantly, low default rates should not be interpreted as evidence of a strong economy.
UK economic growth has remained subdued in real terms for an extended period. However, stronger nominal growth, supported by higher inflation, has helped sustain company revenues and reduced the immediate financial pressure on many businesses.
In other words, the economy has grown slowly, but not so slowly that it has triggered widespread corporate distress.
A resilient, but challenging, outlook
The UK corporate sector continues to face considerable pressures. Higher taxation, rising labour costs, expensive energy and an uncertain geopolitical environment all present ongoing challenges.
Against this backdrop, it’s perhaps a natural consequence that corporate financial stress is present and unevenly distributed across sectors. But there are currently few signs that it is developing into a broader systemic problem.
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