By any judgment, 2025 was not a stellar year for the UK economy, with sluggish growth and sticky inflation as the core problems. This was set against a background of a weakening labour market and all manner of uncertainties for the commercial community from geopolitical events and the continued growth of AI as it increasingly impacts many aspects of how businesses and organisations are run.

As we look forward, there are reasons to be optimistic, but equally there are causes for concern that 2026 may be no better than the year just gone.  Looking first at the latest economic indicators, what are they telling about the near future?

A setback on GDP

• After distinctly pallid growth of 0.1% in Q3 2025 and 0.3% in Q2 2025, the latest numbers suggests that the economy has slipped backwards with a drop of 0.1% in the latest three months to October, although that figure was affected by the cyber attack at Jaguar Land Rover, which pushed the production sector as a whole into a drop of 0.5% and the motor manufacturing sub-sector within it down to a huge fall of 17.7%.
• Breaking down the three months to October in more detail, the dominant services sector was static with neither growth nor a contraction, compared to growth of 0.2% in Q3. The best performing sub-sectors were real estate activities (+0.4%), administrative and support services (+0.9%) and public administration (+0.8%). The laggards were led by professional services (-1.6%), other service activities (-2.6%) and IT (-0.4%).
• Construction GDP fell by 0.3%, compared to its rise of 0.1% in Q3 2025. Repair and maintenance activity fell by 1.0%, but new work was up by just 0.1%.
• Consumer-facing services GDP grew by 0.2%, compared to the drop of 0.1% in Q3 2025.

An improvement on inflation

• CPI inflation fell to 3.2% in the year to November 2025, down from 3.6% in October. City economists had predicted a more modest fall to 3.5%.
• The main downward influence was food inflation which fell from 4.9% in October to only 4.2% in November.
• ‘Core’ inflation (excluding the more volatile elements, such as housing and energy costs) came down to 3.2% from 3.4%.
• Service sector inflation dropped from 4.5% to 4.4%.
• The Bank of England is now predicting that CPI inflation will fall close to its target rate of 2% by Q2 2026, following the disinflationary measures announced in the Autumn 2025 Budget.

A cooling labour market with high persistently high income growth

The latest Office for National Statistics labour force and employment data show:

• Unemployment rose 0.1% to 5.1%.
• Economic inactivity was unchanged at 21% of the working population aged between 16 and 64.
• Vacancies in the quarter to October were virtually unchanged, with a fall of just 2k.
• Pay growth was 4.6%, or 0.8% after inflation.

Inconsistent insolvency numbers

On a non seasonally-adjusted basis for the whole UK, there were 2,030 corporate insolvencies in November 2025, compared to 2,294 in the previous month, a fall of 12% month-on-month and 9% year-on-year compared to November 2024. Looking further back, the current figure is 39% higher than pre-pandemic in February 2020. This drop in business failures follows an equivalent rise in the preceding month. The more meaningful rolling twelve-month total for November 2025 was 25,677, virtually exactly the same as a year previously and 5% down on the all-time high in February 2024.

Where does UK business go from here?

Opportunities for business owners and managers

• Falling inflation: not only were the November CPI figures unexpectedly good, but there are further downward pressures to come from recent government policy decisions to continue the ‘temporary’ 5p fuel duty cut first imposed in 2022, freeze train fares and reduce energy bills by shifting green costs off consumers’ bills and onto general taxation.
• Lower interest rates: the 0.25% cut in December may turn out to be the last reduction for a considerable time, but it will cut the cost of business finance, easing pressure on cash flow and improving short-term liquidity. It may also help to encourage much-needed business investment.

Challenges for business owners and managers

• Glacial growth: the latest predictions for UK growth in 2026 are modest. The OECD is predicting 1.2%, the Office for Budget Responsibility thinks 1.4% and the latest HMT average of independent forecasts aligns with the OECD at 1.2%.
• Subdued business investment: this is forecast by the latest British Chambers of Commerce survey to suffer significantly in 2026 – falling from expected growth of 3% in 2025 to just 0.9%. It is then expected to rise again to 1.5% in 2027. The projected weakness reflects ongoing cost pressures on firms and the lack of direct growth measures in the Budget, but it may be ameliorated by the interest rate cut.
• Escalating labour costs: despite an increasingly cool labour market, staffing costs are a major issue for labour-intensive sectors, as are their deep concerns about the impact of the Employment Rights Bill once it becomes law.
• Exploding business rates liabilities: news of savagely increased costs that emerged the day after the Budget has left many hospitality, leisure and retail businesses wondering whether the Chancellor had been transformed into Ebenezer Scrooge and questioning their viability.

Key strategies for the new year continue to be caution, financial rigour and strong risk awareness. However, to stay competitive in this rapidly changing landscape, businesses should continue to look at new technologies that may help maintain competitive edge. Technology is a key tool for improving processes, strengthening resilience and achieving cost efficiencies. Organisations that fail to explore and invest in the right tools risk falling behind, losing relevance and facing an increasingly uncertain commercial future.

Despite the challenges and uncertainties, there will be opportunities for financially sound and ambitious businesses to expand organically and also by acquisition as struggling competitors look for calmer waters in such a challenging environment.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.