The Resolution Foundation says 2026 could be a turning point for the UK economy after years of weak productivity growth, but warns this transition may involve increased business failures and unemployment. Britain is expected to see rising unemployment as struggling “zombie” companies collapse under higher interest rates, energy costs and rising minimum wages, according to the think-tank. While this could improve long-term productivity by allowing more efficient firms to replace unproductive ones, it may cause short-term job losses. Ruth Curtice, the chief executive of the Resolution Foundation, said: “There are early and encouraging signs of a mild zombie apocalypse, where higher interest rates and minimum wages have combined to kill off struggling firms and leave the door open for new, more productive ones to replace them.”

Business confidence in the UK has fallen, according to the British Chambers of Commerce (BCC), with only 46% of companies expecting increased sales this year and 24% saying they expect to see a decline in turnover. The survey saw 63% of firms polled cite tax rises as their primary concern, while 72% reported rising labour costs as a significant pressure. David Bharier, head of research at the BCC, said the analysis “shows more clouds have gathered over business confidence.” He highlighted that confidence in turnover growth “has been stuck stubbornly below 50% for the last 12 months, adding: “A budget fundamentally light on growth measures did little to boost business confidence and sentiment overall has worsened since the previous quarter.” The BCC polled 4,600 businesses, 91% of which were SMEs.

The Times asks several prominent figures in the world of business what they expect to see in 2026. Helen Miller, director of the Institute for Fiscal Studies, believes that “even if the outlook brightens in line with the more optimistic forecasts, it won’t be enough to meaningfully ease the fiscal pressures on the Government.” She says debt will “move closer” to 100% of national income and the UK will spend more than £100bn servicing that debt. Meanwhile, Shevaun Haviland, director general of the British Chambers of Commerce, says trade “is going to be top of the agenda.” She notes that the business group estimates that a 2 percentage point increase in exports can drive a 0.6% increase in GDP. CS Venkatakrishnan, chief executive of Barclays, suggests that the UK “is in a good place overall,” adding: “We expect growth in 2025 to have been around 1.4%, we forecast the same in 2026.”

Greg Jackson, CEO of Octopus Energy, has warned that over-cautious investors, excessive bureaucracy and “byzantine rules” hinder the growth of young firms in the UK. He advocates for regulatory reforms to favour start-ups over incumbents. Mr Jackson, who joined the board of the Cabinet Office in July, says there is a need for a cultural shift to attract public listings, warning: “London’s in this negative spiral, and it needs to get out of it.” Mr Jackson has also expressed concerns about the increasing bureaucratic burden on small businesses, which detracts from innovation and growth. He says that while regulation focused on issues such as money laundering is “sensible,” it is being implemented in “an overbearing way.”

Sir Keir Starmer says the Government would be willing to align the UK more closely with the EU, including the single market, telling the BBC’s Sunday With Laura Kuenssberg: ‘I think we should get closer, and if it’s in our national interest to have even closer alignment with the single market, then we should consider that, we should go that far.” Despite saying ministers would consider closer alignment with the bloc, the Prime Minister insisted that there would be no return to full free movement of people. Sir Keir has previously ruled out rejoining the EU customs union, describing it as a “red line.”

Around 864,000 self-assessment taxpayers will transition to Making Tax Digital (MTD) for income tax this year under reforms requiring five filings per year. This change, effective from 6 April, mandates the use of HMRC-approved software and non-compliance could lead to fines of up to £3,000 per quarter. A recent survey by IPSE shows that nearly 40% of sole traders are unaware of these changes. Fiona Fernie from Blick Rothenberg says the change will not have an impact on tax liabilities or the payment dates on which income tax has to be paid, “which begs the question, what is the point of MTD?”

Rising employer National Insurance contributions and higher minimum wages have pushed up labour costs, forcing pubs and other hospitality and service businesses to cut staff numbers, reduce opening hours, and stop hiring students and apprentices. Companies say the increase in employer National Insurance has led them to freeze hiring or cut staff, pushing the unemployment rate up to 5.1% in October. Many employers are limiting staff hours, contributing to a rise in underemployment – where staff are seeking more hours than their employers can offer. The number of people who say they are underemployed hit 8.1% in September, according to the Office for National Statistics, with this the highest level since 2021.

Britain’s unemployment rate has climbed to 5.1%, narrowing to within one percentage point of the EU’s 6%. This is the closest the levels have been since the euro was launched, a reversal from a decade ago when EU joblessness was almost double the UK’s. The shrinking gap, occurring as EU unemployment improves, suggests the UK’s problems are largely domestic, with economists blaming tax rises, higher National Insurance rates and above-inflation minimum wage increases for raising hiring costs. Payrolled employment has fallen by 187,000 since October 2024 and youth unemployment has reached 16%, with overall joblessness at its highest since the pandemic.

AI is projected to significantly enhance the UK economy, adding £2bn to GDP this year, according to PwC. By 2029, this contribution could rise to £7bn, reaching £23bn by 2032. PwC’s UK chief economist, Barret Kupelian, noted that AI could account for 43% of GDP growth by 2032. He suggested that the UK may look to focus on internal growth rather than relying on international trade, commenting: “Reducing economic inactivity and increasing productivity will become much more important levers to grow the economy.”

The manufacturing sector is showing signs of recovery, with the UK Manufacturing Purchasing Managers’ Index (PMI) from S&P Global UK reaching a 15-month high of 50.6 in December. This marks the second consecutive month of growth, driven by increased output and new orders. However, challenges remain, including declines in stock purchases.

Pavita Cooper, chair of the 30% Club, says the lack of female chief executives in the FTSE 100 will be a key area of focus for the campaign group, saying: “It doesn’t feel like there’s enough momentum around a conversation about this – We want to reignite that.” Despite an increase in female board representation from 12.5% to 44% since 2010, the number of female CEOs has only risen from five to eight. A recent report produced by the Women in Work campaign group revealed a decline in female CEOs across 400 companies analysed, from 45 in 2024 to 43 in 2025. Of the 48 chief executive vacancies advertised in this period, half of the women leaving roles were replaced by other women. However, when male CEOs left their roles, 90% were replaced by men. Ms Cooper, whose new campaign aims to see 30 women leading FTSE 100 companies by 2030, has emphasised the need for a collective effort to address cultural barriers preventing women from pursuing these roles.

The Financial Conduct Authority is focusing on fewer, high-impact investigations, resulting in a significant reduction of legacy cases and improved enforcement outcomes. The City watchdog has also tried to speed up its investigations.

Thousands of Self Assessment customers submitted their tax returns during the Christmas period, with 4,600 filed on Christmas Day alone.