Macro momentum is fading as monetary and fiscal policy turn restrictive. This briefing summarises the November data, the UK Budget 2025 impact and sector risks — with practical implications for credit and collections teams heading into 2026.

UK macro conditions (November 2025)

Activity & output

ONS data show UK GDP fell 0.1% in September; services slowed and industry and construction contracted. Manufacturing PMI remained below 50 and services hovered near 50, signalling weak demand.

Credit impact: Expect slower revenue, delayed orders and extended payment cycles — particularly across mid-market manufacturing and construction supply chains.

Inflation

Headline CPI eased to ~3.3% but services inflation stayed high (~5.3%), keeping real cost pressures elevated for labour-intensive sectors.

Credit impact: Households remain squeezed; consumer-facing credit and SME repayment capacity are under pressure.

Labour Market

Unemployment sits at ~4.4%, vacancies are falling, and pay growth remains elevated (~4.9% y/y).

Credit impact: Employment supports short-term repayment, but persistent wage costs compress corporate margins.

Monetary policy

Bank Rate remains restrictive (3.75%) and QT continues. Markets pushed first cut expectations to late Q2 2026.

Credit impact: High financing costs persist into 2026, increasing refinancing and arrears risk.

UK Budget 2025 – Business & Credit Implications

The Budget targets fiscal stability with borrowing projected at 4.7% of GDP, prompting consolidation rather than demand support.

Key business measures

• Corporation tax at 25% with narrower reliefs
• Tighter R&D credit eligibility
• Business rates uprating from April 2026
• Digital fraud levy on large platforms
• Cyber Resilience Deduction for accelerated tax relief on cyber investment

Credit impact: Most firms face a higher effective tax burden, reducing cash generation — mid-market and leveraged companies are most exposed.

Households & spending

Income-tax threshold freezes create fiscal drag, cutting real disposable income in 2026 and weighing on discretionary consumption.

Credit impact: Retail, hospitality and leisure portfolios should expect higher arrears and restructuring requests.

Corporate insolvencies — early signals for 2026

October recorded ~2,210 insolvencies (+9% y/y) with compulsory liquidations up ~22% y/y, indicating growing creditor-led failures. Construction, manufacturing and transport are particularly affected.

Credit action: Move to weekly monitoring of arrears, covenant breaches and early-warning indicators in stressed sectors.

Sector spotlight: Construction

UK construction output fell again in September; EU construction output is also weakening. The sector faces a December–January liquidity crunch, margin erosion, labour shortages and a 12% fall in private housing starts.

Credit action: Place exposed counterparties on heightened alert, reassess collateral realisability and tighten payment terms for subcontractors.

Sector spotlight: Automotive

JLR’s cyber-attack and broader demand weakness have hit production — UK output down ~14% y/y and EU registrations down ~6.2% y/y. EV uptake has slowed and consolidation risk among legacy OEMs is rising.

Credit action: Treat automotive as a systemic supply-chain risk; extend exposure reviews to tier-1/2 suppliers, logistics and dealers.

Europe-wide conditions

Eurozone GDP slipped (-0.1% q/q). Inflation is easing but core remains elevated; the ECB keeps policy restrictive and banks report tighter lending standards and lower corporate loan demand.

Credit impact: UK exporters should expect delayed orders, longer payment terms and higher working-capital stress with EU counterparties.

Cross cutting implications for Credit & Collections

1. Treat liquidity risk as systemic — widen portfolio reviews.
2. Embed Budget 2025 into stress tests and rating frameworks.
3. Move to near real-time insolvency monitoring (weekly MIS).
4. Elevate cyber-resilience as a credit metric.
5. Recognise Europe’s slowdown as a direct risk to UK portfolios.

Outlook for 2026

The UK and Europe enter 2026 under restrictive fiscal and monetary policy, weakening output and tightening credit supply. Construction and automotive face structural rather than cyclical stress. Insolvencies are rising, creditor forbearance is diminishing, and liquidity pressure is broadening across sectors.

For credit and collections leaders, 2026 will require disciplined working-capital management, stronger counterparty scrutiny and faster escalation of arrears. Scenario planning based on these macro and policy signals is now essential to protect portfolios.