Our analysis reveals persistent challenges impacting business investment, overall economic growth, and corporate profitability across the United Kingdom. We identify key trends shaping the corporate landscape, suggesting a period of sustained, slow economic decay rather than an acute downturn.

UK corporates are experiencing considerable financial strain from multiple factors. Our data highlights a record-high and increasing corporate tax burden, rising employment costs, and an elevated debt-servicing burden, despite some interest rate easing observed since early 2024. 

UK corporate taxation as a share of nominal GDP has reached new heights (%)

Regulatory pressures further contribute to these financial challenges. The overall tax burden on the UK corporate sector has doubled as a percentage of GDP over the last decade, with specific measures like business rates significantly impacting sectors such as retail and hospitality.

Corporate profitability in the UK has deteriorated as a result of a confluence of factors. The net rate of return for UK businesses is now below long-run averages, and the corporate sector’s share of nominal GDP has reached decade lows. This decline in profitability is a huge concern, as our assessment indicates it poses a greater risk to future capital expenditure, especially for larger investments, than to employment levels. 

Corporate profitability in sinking

And cash reserves are depleting

We also observe a concerning trend in corporate liquidity: approximately 20% of UK firms report holding less than one month of cash reserves, a figure that has steadily increased. Conversely, the proportion of companies with over six months of cash reserves has decreased from around 30% to below 25%, indicating diminishing financial buffers.

Our interpretation of recent survey data suggests a prevailing UK business mood consistent with a continuing slow economic decay rather than an immediate collapse. While corporate insolvency rates and liquidations remain relatively high compared to the past decade, we have not observed an abrupt deterioration in momentum. 

Interestingly, UK corporates themselves do not appear overly concerned about immediate insolvency risk. This perspective differs somewhat from lender surveys, which anticipate expected default rates to decline into early 2026, nearing long-run averages. 

However, we note a subtle but important shift: the 'moderate risk' category for insolvency increased from 8% in early 2025 to 14%, reflecting perceptions of higher market risk.

A key finding from our economic analysis is the persistent weakness in UK business investment. Capital expenditure (capex) in the UK remains subdued, approximately 10% below the trend line projected had growth continued from before the Brexit referendum.

Worryingly, the UK consistently records the lowest capital expenditure as a percentage of GDP among G7 economies, a structural issue that continues to constrain productivity and long-term economic growth.

UK business investment: intended vs. actual 

Recent survey data from late 2025 further underscores this caution, showing a significant deterioration in investment intentions. These intentions have reached their lowest levels since the pandemic lockdowns, and in some instances, since the global financial crisis. 

While external factors, such as anxiety surrounding the UK Budget at the time of these surveys, may have played a role, the overarching trend is clear: reduced corporate profitability directly affects businesses’ willingness and capacity for significant new investments. Furthermore, we observe negligible net borrowing by UK corporates since the pandemic, reinforcing this trend of hesitant capital deployment

The synthesis of our corporate sector data and survey analysis points towards a continuation of slow economic decay for the UK economy. This implies that capital expenditure will likely remain tentative, which will, in turn, constrain overall UK GDP growth. 

Based on our current projections, we anticipate little expectation for potential UK GDP growth rates to recover to the approximately 2% observed in previous economic cycles anytime soon.

While a slower economic environment might create conditions for additional monetary policy easing, we view such interest rate adjustments as a response to a faltering economy, rather than a clear indicator of economic strength or success. The relentless rise in taxation is a primary vulnerability, weighing on economic growth and the crucial capital expenditure necessary for future prosperity.

We anticipate a prolonged period of modest growth coupled with ongoing financial pressures. For corporate financial decision-makers, our analysis suggests the necessity of a pragmatic and adaptive approach. 

While a sudden economic downturn is not our central forecast, the scenario of 'slow decay' demands a focus on operational efficiency, prudent cash flow management, and agile adaptation to both regulatory and economic shifts.

Reach out to your usual bank contact or get in touch with us here to learn more about how to adapt to the big trends shaping the UK economy.