United Kingdom

Recovery remains subdued amid weak domestic and external demand

The UK economy is expected to expand only modestly through the remainder of 2026 and into 2027, constrained by weak household consumption, elevated borrowing costs and a challenging external environment. Although the labour market appears to have passed its weakest point, the recovery is expected to be gradual, while renewed inflationary pressures in 2026 are eroding the gains from recent wage growth. Higher mortgage costs and continued uncertainty over the economic outlook are also weighing on consumer confidence and housing activity, limiting the scope for a stronger recovery in private demand. Monetary policy is expected to remain relatively restrictive, as persistent inflation constrains the Bank of England's ability to lower interest rates significantly. As a result, financing conditions are likely to remain challenging for households and businesses throughout much of the forecast period. Government spending and public investment will therefore continue to play an important role in supporting growth, particularly through increased defence expenditure, infrastructure projects and housing investment. While planning reforms should gradually support construction activity and investment, any substantial economic benefits are likely to emerge more clearly during 2027.

External conditions remain difficult. Slower global growth, US tariffs and continued weakness in key export markets are weighing on trade performance. Although relations between the UK and the European Union have improved gradually, trade frictions continue to constrain goods exports. As a result, economic growth is expected to remain more dependent on domestic demand rather than external trade.

Corporate insolvencies remain elevated despite some moderation from their 2024 peak. While insolvency levels eased during the first half of 2026, pressures have intensified in sectors most exposed to higher energy costs, global competition and weaker demand, including automotive suppliers, building materials, metals production, transport and real estate. Looking ahead, persistent cost pressures, subdued demand and higher-for-longer interest rates are expected to contribute to a renewed increase in insolvencies during late 2026 and 2027.

Fiscal position improves slowly despite rising debt

The UK's fiscal deficit is expected to narrow gradually during 2026 and 2027, supported by stronger tax revenues resulting from higher nominal wages and recent tax increases. However, government spending is also set to rise, particularly on defence, public services and investment programmes. Consequently, public debt is expected to continue increasing as a share of GDP, albeit at a slower pace than in recent years. At the same time, the Bank of England is expected to continue reducing its stock of government bonds, although the pace of quantitative tightening is likely to remain gradual.

The current account deficit is expected to remain broadly unchanged over the forecast period. A sizeable surplus in services trade, underpinned by the UK's strengths in financial and professional services, will continue to offset part of the persistent deficit in goods trade. Rising domestic demand and public investment are likely to support import growth, limiting any significant improvement in the external balance. While most post-Brexit trade adjustments have now been absorbed by businesses, the higher costs associated with the UK-EU trading relationship continue to weigh on trade volumes.

New leadership reshapes political priorities

Despite securing a large parliamentary majority in the 2024 general election, the Labour government experienced declining public support during 2025 and the first half of 2026. This culminated in a change of leadership in June 2026, when Prime Minister Keir Starmer stepped down and was succeeded by Andy Burnham, a former Labour cabinet minister and long-serving Mayor of Greater Manchester. While the new administration remains committed to the broad objectives of Labour's 2024 manifesto, Burnham has placed greater emphasis on regional devolution, housing investment, social care and tackling youth unemployment.

The new government is expected to focus more on traditional social issues with increased investment in housing, local infrastructure and regional development. While further tax increases remain likely, these are expected to be more targeted and modest than previously anticipated, reflecting concerns about the impact of higher taxation on business investment and household spending. To support higher levels of public investment while remaining within the government's fiscal rules, additional financing is expected to rely increasingly on public financial institutions and public-private investment vehicles rather than conventional government borrowing alone. The leadership change has improved Labour's standing in opinion polls, although support for the party remains closely contested with Reform UK, suggesting a more competitive political environment. The next general election is not required until August 2029, although speculation persists that Burnham could seek an earlier mandate should economic conditions and polling trends continue to improve.

At the same time, the UK continues to navigate a complex international environment, balancing its relationship with the United States while seeking closer cooperation with the European Union. Defence and security cooperation have become increasingly important areas of engagement, with the government viewing stronger European partnerships as a means of supporting both economic and geopolitical objectives.

Payment

Cheques are still used for domestic and international commercial payments, although bills of exchange and letters of credit are preferred for international transactions. Bank transfers – particularly SWIFT transfers ? are also often used and are viewed as a fast and reliable method of payment. Direct Debits and Standing orders are also recognised as practical solutions for making regular or anticipated payments and are particularly widely used in domestic transactions. It is acceptable to issue invoices both before and after the supply of goods or services.

Debt Collection

AMICABLE PHASE

The debt collection process usually begins with the debtor being sent a demand for payment, followed by a series of further written correspondence, telephone calls and (if the value of the debt permits), personal visits and debtor meetings. The collection process has been designed as a progression of stages, beginning with an amicable (pre-legal) collection phase and escalating up to litigation, should the debtor fail to meet his obligations.

LEGAL PROCEEDINGS

The County Court only has civil jurisdiction. Judges handle claims for debt collection, personal injury, breach of contract concerning goods or property, land recovery and family issues (such as divorce and adoption). Cases valued at less than GBP 25,000 (or under GBP 50,000 for personal injury cases) must have their first hearing in the county court.

The High Court is based in London, but also has provincial districts known as “District Registries” all over England and Wales. It has three divisions: the Queen’s Bench Division, the Chancery Division, and the Family Division.

The Court of Appeal has two divisions – the Civil Division and the Criminal Division.

The Supreme Court is composed of a president, a deputy president, and twelve professional justices.

Fast-track proceedings (Summary Judgments)

In order to apply for a summary judgment, the claimant must obtain an Application Notice Form from the court. This should be supported by a Statement in which the claimant sets out why he believes that summary judgment should be given ? either because the defendant has no real prospect of successfully defending the claim, or because there is no reason why the case should be decided by a full trial.

A copy of this statement is served on the opponent seven days before the summary judgment hearing. The opponent also has the opportunity of presenting a statement, but this must be sent no later than three days before the hearing. The claimant cannot apply for summary judgment until the debtor has either returned an acknowledgment of service form, or has filed a defence. If the court agrees with the claimant, it will return a favourable judgment. The application will be dismissed if the court does not agree with the claimant.

Ordinary proceedings

There are now identical procedures and jurisdictions for the County Court and the High Court. A number of litigation “tracks” have been created, each with their own procedural timetables. Claims are allocated to a track by a procedural judge, according to their monetary value. There are transaction processes that need to be followed before initiating a court action. These processes have been designed to encourage the parties concerned to settle disputes without the need for court proceedings, thus minimising costs and court time.

Proceedings formally commence when the claimant (formerly “the plaintiff”) files a Claim Form with the County Court or the High Court. Full details of the complaint are set out in the Particulars of Claim, which is usually a separate document which supports the Claim Form. The Claim Form must be served on the defendant by the court, or by the claimant. The defendant can then respond to the claim form within 14 days of service. A time extension of 28 days is agreed for the debtor to file a defence and/or a counter-claim. Once these formal documents have been exchanged, the court orders both parties to complete an “Allocation Questionnaire”.

Freezing order (formerly Mareva Injunction)

A freezing order (or freezing injunction) is a special interim order which prevents the defendant from disposing of assets or removing them from the country. One of the conditions attached to the granting of such an order is often that the applicant will pay full costs to the person against whom it was made, if it turns out to be inappropriate. A typical commercial dispute can take 18-24 months to reach a judgment, starting from the time legal action is first initiated.

Enforcement of a Legal Decision

A number of enforcement mechanisms are available. These include the Warrant of Execution (which allows a County Court Bailiff to request payment from the debtor) and the Writ of Fieri Facias for debts exceeding GBP 600, under which a High Court Enforcement Officer can make a levy on goods to the equivalent value of the judgment debt (for subsequent sale at auction and offsetting against the amount due).

As a member of the European Union, the UK has adopted several enforcement mechanisms for decisions rendered in other EU countries. These include EU payment orders which are directly enforceable in domestic courts and the European Enforcement Order, for undisputed claims. Judgments issued in non-EU countries are recognised and enforced if the issuing country has an agreement with the UK. If no such agreement is in place, an exequatur procedure is provided by English Private International?Law.

Insolvency Proceedings

ADMINISTRATION

Administration is intended as a rescue mechanism which enables companies (wherever possible) to continue with their business operations. The procedure is initiated either by applying to the court for an administration order, or by filing papers with the court documenting the out-of-court appointment of an administrator.

COMPANY VOLUNTARY ARRANGEMENT (CVA)

The CVA is an informal but binding agreement, between a company and its unsecured creditors, in which the company’s debts are renegotiated. It can be used to avoid or support other insolvency procedures, such as administration or liquidation. It provides for a restructuring plan which imposes the support of dissenting creditors.

CREDITOR’S SCHEME OF ARRANGEMENT

The Creditor’s Scheme of Arrangement is a court-approved compromise or arrangement, between a corporate debtor and all classes of its creditors, for the reorganisation or rescheduling of its debts. It is not an insolvency procedure and does not include a moratorium on creditor action. It can, however, be implemented in conjunction with formal insolvency proceedings, (administration or liquidation). It can also be implemented on a standalone basis by the debtor company itself.

RECEIVERSHIP

There are three types of receivers. The first of these is a receiver appointed with statutory powers. The second type of receiver is one who is appointed under the terms of a fixed charge or a security trust deed. The third category is an administrator (who is appointed under the terms of a floating charge over all, or a substantial share, of the debtor company’s property.

LIQUIDATION

A company can enter voluntary or compulsory liquidation. Voluntary liquidations can be either a “members’ voluntary liquidation” or a “creditors’ voluntary liquidation”. Both of these proceedings are initiated by the company itself, by passing a resolution during a meeting of members. The company then ceases trading and a liquidator collects the company’s assets and distributes the benefits to the creditors so as to satisfy, as far as possible, the company’s liabilities.

Last updated: August 2026