From pressure to preparedness: The economic stress signals UK businesses cannot ignore

At our recent webinar, UK economic stress signals in 2026: What CFOs, lenders and advisers should be looking out for now, specialists from S&W's economic advisory, restructuring and business tax teams explored the pressures currently dominating the UK business landscape and, crucially, the warning signs leaders should be watching for before challenges become crises.

Their message was clear: While the economic backdrop remains challenging, businesses that recognise stress signals early and respond decisively retain far more control over their future.

Economic headlines often focus on inflation, interest rates and geopolitical events. Yet beneath the surface, one theme repeatedly emerged throughout the discussion: confidence.

Businesses continue to navigate cost inflation, funding pressures and geopolitical uncertainty. However, the real impact of these forces is often behavioural. Investment decisions are delayed. Expansion plans are paused. Hiring slows. Cash is retained rather than deployed.

As Andrew Pepper, Head of Special Situations at S&W, observed: “Organisations are increasingly asking themselves whether to invest, recruit and grow, or whether to wait for greater certainty.”

That hesitation can become self-reinforcing.

When businesses lose confidence, investment falls and growth opportunities are missed. Even fundamentally healthy organisations can become vulnerable if prolonged caution starts affecting productivity and competitiveness.

The panel highlighted how today's stress signals rarely exist in isolation.

Energy price volatility remains a concern following ongoing instability in the Middle East. UK businesses continue to feel the effects of higher operating costs, with energy, labour and raw material expenses feeding through supply chains and into margins.

At the same time, businesses are managing:

• Persistent inflationary pressures
• Higher borrowing costs
• Skills shortages and labour market rigidity
• Weaker business investment
• Continued geopolitical uncertainty

Individually, each challenge may be manageable. Combined and consistent, they can place significant strain on forecasting accuracy and strategic decision-making.

For leadership teams, this means stress testing assumptions more frequently and recognising that a problem in one area can quickly multiply pressure elsewhere.

The panel also discussed the varying timescales considered by different stakeholder groups. Tom Partridge, Partner in Restructuring Pensions Advisory, who also chaired the discussion, highlighted this: “Pension stakeholders are increasingly joining up macroeconomic uncertainty and opportunity, thinking about the longer-term structural risks that are faced.”

Another theme from the webinar was the growing importance of tax within business planning.

As uncertainty has increased, many CFOs are bringing tax considerations closer to day-to-day decision-making rather than treating them as year-end compliance matters.

Businesses are placing greater emphasis on:

• Cash tax forecasting
• Scenario modelling
• Refinancing and restructuring implications
• Maximising available reliefs and incentives
• Tax governance and risk management

In particular, the panel noted an increased focus on corporation tax forecasting and the timing of tax payments, reflecting the importance of preserving liquidity in a more constrained funding environment.

As Katherine Colledge, Head of Business Tax, Regions at S&W, explained during the discussion: “Tax has become an active tool for managing financial resilience rather than simply an administrative requirement.”

Businesses that fail to account for its impact risk creating avoidable pressure on cash flow at precisely the wrong time.

While much of the discussion focused on risk, the outlook was not necessarily exclusively negative.

Jonathan Gillham, Partner in Economic Advisory, highlighted the UK's long-running productivity challenge and the potential for AI to help address it: “After more than a decade of relatively weak productivity growth, businesses now have access to technologies capable of improving efficiency across many service-led activities.”

The opportunity extends beyond simple automation. Organisations that successfully integrate AI into workflows, decision-making and knowledge management could unlock meaningful productivity gains, while improving responsiveness and reducing operational friction.

However, the benefits are unlikely to be automatic. Businesses will need to invest in skills, rethink workflows and ensure leadership teams understand how technology can support strategic objectives rather than simply reduce costs.

The organisations making those decisions today are likely to be better positioned tomorrow.

Perhaps the most important takeaway from the discussion was the value of acting early.

Across restructuring, special situations and turnaround engagements, a common pattern emerges. Many businesses recognise the warning signs long before stakeholders become involved. The challenge is that action is often delayed.

Warning signs can include:

• Margin erosion
• Increasing pressure on EBITDA
• Tightening creditor terms
• Persistent forecasting inaccuracies
• Delayed tax payments
• Growing reliance on future funding events
• Stakeholder concerns around performance

Importantly, the panel stressed that recognising these signals should not be viewed as an admission of failure. Instead, they should be treated as an opportunity to reassess strategy, engage stakeholders and create solutions while options remain available.

As Pepper noted: “Stakeholders are often more receptive to change than management teams expect. Lenders, investors and advisers frequently prefer early conversations about solutions rather than later discussions about survival.”

Not all stress indicators appear in management accounts. Towards the end of the discussion, attention turned to a less tangible but equally important signal: the wellbeing of business leaders themselves.

Board members and advisers often focus on financial metrics first. Yet fatigue, stress, reluctance to engage with difficult decisions and deteriorating confidence can be alternative indicators that a business is under pressure.

In practice, many successful interventions begin with honest conversations rather than financial analysis.

The ability to recognise those softer warning signs and create an environment where difficult issues can be discussed openly, often provides the foundation for successful turnaround planning.

Economic stress does not necessarily have to signal business distress.

However, prolonged uncertainty demands active management. The organisations best positioned to succeed over the next 12 months and beyond are unlikely to be those waiting for conditions to improve. They will be the ones using available data, expert advice and early warning indicators to make informed decisions today.