The UK is facing a rise in unemployment in 2026 as so-called 'zombie' companies collapse under the weight of rising costs, according to a report from the Resolution Foundation. The thinktank warns that businesses are struggling with a 'triple whammy' of higher interest rates, energy prices, and the minimum wage, which could finish off underperforming firms.
The Resolution Foundation's new year outlook suggests 2026 could be a 'turning point' for the economy, with potential for improved productivity growth through 'creative destruction'—where inefficient firms are replaced by more productive ones. However, this process may lead to job displacement and higher unemployment in the short term.
Ruth Curtice, chief executive of the Resolution Foundation, noted 'early and encouraging signs of a mild zombie apocalypse,' where higher costs are killing off struggling firms and making way for new, more productive businesses. She warned that policymakers must address the short-term impact of job losses and higher unemployment.
Unemployment in the UK has already reached 5.1%—the highest outside the pandemic in a decade—as employers held back on hiring before the autumn budget. Business leaders cite tax increases and a rising living wage as deterrents to hiring.
The British Chambers of Commerce (BCC) reported that business confidence slumped to a three-year low in the final quarter of 2025, with tax being the biggest concern. Fewer than half of firms expect increased turnover in the next 12 months, and only 19% have increased investment.
The Resolution Foundation urged the government to focus on supporting living standards, as disposable income growth is expected to remain mediocre. 'We must hope—but more importantly act—to ensure that 2026 is a turning point year for lifting living standards too,' Curtice said.
