A leading think tank has issued a stark warning to Chancellor Rachel Reeves, forecasting a 'zombie apocalypse' for the UK economy in the coming year as thousands of unproductive businesses face collapse.
The 'Triple Whammy' Driving Firm Failures
The left-leaning Resolution Foundation predicts a 'triple whammy' of sustained high interest rates, elevated energy prices, and increases to the minimum wage will force low-productivity companies to the wall. The think tank suggests this could pave the way for more dynamic firms to emerge, potentially boosting long-term productivity.
This forecast follows official data showing the share of jobs lost from company closures hit its highest level since 2011. Company insolvencies rose by 17 per cent year-on-year in October 2025, reaching 2,029.
"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," said Ruth Curtice, chief executive of the Resolution Foundation.
Rising Unemployment and a 'Growth Crawl' for Incomes
However, Curtice cautioned that this economic purge comes with a significant downside: rising unemployment. The jobless rate surged past five per cent in 2025 as companies contended with cost pressures from wage growth and the government's increase to employers' National Insurance.
Meanwhile, growth in household disposable income is set to slow dramatically. The Office for National Statistics reported a 'slowing' economic picture in the second half of 2025, with the economy shrinking 0.1 per cent in October amid investment pauses.
Following Chancellor Reeves' November Budget, which implemented £26bn in tax rises including a freeze on income tax thresholds, the Resolution Foundation forecasts Real Household Disposable Income (RHDI) per capita will grow by just 0.2 per cent in 2026—a situation it describes as a 'growth crawl'.
Demographic Pressures and a 'Consequential Transition'
The think tank warns the country is in a 'slow but consequential transition', marked by an ageing population, higher taxes, and a fragile political climate. It suggests 2026 could begin an era where deaths consistently outnumber births, placing further strain on public finances.
Welfare spending is projected to rise by £73.2bn over the next five years, with £34bn of that attributed to the state pension triple lock. The Centre for Policy Studies argues this creates a major dividing line, with workers being 'quietly hammered' by taxes while pensioners are protected.
"This should prompt us to ask hard questions about the future of our public services, and the tax revenues needed to fund them, in an ageing society," Curtice concluded, urging policymakers to redouble efforts to foster new, productive firms and jobs.
