Collapse of ‘zombie’ UK firms forecast to fuel unemployment in 2026

2 days ago7 min read

The UK economy is staring down the barrel of a delayed but potent shock, with a new report from the Resolution Foundation warning that a wave of corporate failures is set to crest in 2026, driving a significant rise in unemployment. This isn't a story of a sudden, black-swan event, but rather the grim culmination of a multi-year pressure campaign on British businesses—a 'triple whammy' of sustained high interest rates, elevated energy costs, and a rising minimum wage that is finally poised to finish off a cohort of so-called 'zombie' companies.These are the walking wounded of the corporate world, firms that have been kept afloat for years by historically cheap debt and lenient creditor forbearance, generating just enough cash to service their debts but not enough to invest, innovate, or build resilience. For analysts like myself, who focus on political risk and unexpected shocks, this forecast represents a classic case of a slow-burn crisis transitioning into acute phase, a scenario where the underlying vulnerabilities have been clearly mapped, yet the timing and full societal impact remain dangerously uncertain.The genesis of this zombie cohort traces directly back to the post-2008 and COVID-19 eras, where emergency monetary policy and government support schemes, while necessary lifelines, inadvertently allowed fundamentally unproductive companies to survive. Now, with the Bank of England's base rate having climbed from near-zero to a restrictive 5.25% and likely to stay 'higher for longer', the cost of servicing that accumulated debt has become crippling. Concurrently, the structural shift in global energy markets post-Ukraine invasion has locked in higher utility bills as a permanent operating cost, while politically popular, above-inflation increases to the National Living Wage squeeze profit margins from the other side.This pincer movement leaves no room for manoeuvre. The Resolution Foundation's analysis suggests that 2025 might see a deceptive calm, as firms exhaust remaining buffers, but 2026 is the year the dam breaks.The consequences will be geographically and sectorally uneven. Regions already suffering from low productivity and older industrial bases—think parts of the Midlands, Yorkshire, and the North East—will likely bear the brunt of the job losses, exacerbating the UK's stark regional inequalities.Sectors like retail hospitality, and low-margin manufacturing, which operate on thin profits and are labour-intensive, are particularly exposed. The human cost will be measured not just in unemployment statistics, but in the secondary shocks to local high streets, commercial real estate vacancies, and local government finances already stretched to breaking point.From a risk-planning perspective, this presents a nightmare for the next government, regardless of its political colour. A significant rise in joblessness in 2026 would blow a hole in fiscal plans, forcing an unpalatable choice between raising taxes, cutting other public services further, or increasing borrowing at a time when debt sustainability is already a central market concern.

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#zombie companies

#unemployment forecast

#UK economy

#business costs

#Resolution Foundation

#interest rates

#minimum wage