September 2026 UK Sector Snippets

UK sectors entered the second half of 2026 with a mixed risk picture. Cost inflation, geopolitical disruption, subdued demand and tight liquidity continue to shape trading conditions, but the impact varies sharply by industry and business model. Scale, recurring revenue, pricing power and balance-sheet strength are increasingly important markers of resilience.

Automotive Suppliers, Construction and Paper carry the highest risk levels in this update, while Pharmaceuticals remains the strongest-rated sector. Agrifood, Computers & Telecoms, and Software & IT Services also show relative stability. Across the sectors rated at moderate risk, businesses should look beyond the headline rating and assess exposure to energy, financing, supply chains and weaker counterparties.

Outlook: The UK agrifood sector remains broadly stable, but margins and liquidity continue to face pressure from weak demand, elevated costs and ongoing subsidy reform. While inflation is supporting nominal revenues, real growth remains modest and businesses are operating with limited financial flexibility, keeping the near-term outlook cautious.

Kieron Franks, Sector Head for Agrifood, notes that inflation is helping to sustain revenues, but demand has yet to recover sufficiently to offset cost pressures and supply-side constraints, meaning the sector remains exposed to further volatility.

Businesses should keep a close watch on cash flow, cost exposure and customer or supplier resilience, particularly where financial buffers are limited.

Outlook: UK automotive manufacturing is stabilising cyclically, but structural pressures remain. Production fell 15.5% year on year in 2025 and has stayed volatile in early 2026, while exports account for around 77% of output. Domestic registrations rose by around 6% in Q1 2026, supported by fleet demand and EV growth, but the transition to electrification continues to require heavy investment as profitability remains compressed.

Nicole White, Sector Head for Automotive Manufacturers, highlights that larger OEMs remain relatively resilient, while smaller and subscale operators face greater pressure from export dependence, higher financing costs and significant working-capital requirements. The investment demands of the EV transition continue to weigh on profitability, and although output may recover modestly, uncertain global demand and execution challenges temper the outlook.

Businesses should prioritise effective EV transition planning alongside disciplined cost and cash management, while closely monitoring export markets. Overall, the outlook is stable to slightly negative, with risks remaining skewed to the downside.

Outlook: Automotive suppliers are facing flat growth alongside high transformation costs as electrification, digitalisation and geopolitical shifts reshape the market. Demand is strongest in used vehicles and the aftermarket, while modest new-car growth is driven mainly by fleets. Margins remain below historical levels as input costs, wage inflation and OEM pricing pressure persist.

Nicole White, Sector Head for Automotive Suppliers, says suppliers are responding through cost control, automation and closer commercial partnerships, while also adapting to emissions, ESG and battery-recycling requirements. Many are also diversifying supply chains and investing in workforce development to address tariff exposure and skills shortages. These measures are intended to protect margins and support resilience as the market gradually adjusts to electrification.

Businesses should prioritise operational efficiency, supply-chain diversification and workforce capability. Those able to manage tariffs, skills shortages and compliance costs will be better placed for a gradual recovery.

Outlook: The UK chemicals sector is under exceptional pressure from high energy and feedstock costs, weak global demand and geopolitical instability. After a sharp output decline in 2025, operating conditions deteriorated further in Q1 2026. Between February and March, wholesale gas prices rose by 67% and crude oil moved from the $60 range to above $100 per barrel, while overcapacity and low-priced imports continue to delay recovery.

Kieron Franks, Sector Head for Chemicals, warns that domestic producers face a major cost disadvantage against US and Middle Eastern competitors with cheaper energy and feedstocks, leaving sector liquidity under strain. Cautious buying across key chemical derivatives is keeping demand weak, while overcapacity in basic chemicals and competition from low-priced imports continues to delay a meaningful recovery.

Businesses should stress-test energy and raw-material exposure, protect liquidity and remain cautious on counterparties. A meaningful recovery is unlikely until demand improves and cost pressures ease.

Outlook: The UK computers and telecoms sector remains resilient despite ongoing geopolitical, energy and supply-chain pressures. Public and private investment continues to support AI, digital infrastructure and skills development through initiatives such as the Digital and Technologies Sector Plan, AI Growth Zones and TechFirst. However, higher data-centre energy costs, semiconductor constraints and rising cyber risks continue to create near-term uncertainty.

Chris Daker, Sector Head for Computers & Telecoms, notes that semiconductor shortages could reduce shipments by around 9%, while cybersecurity remains a key concern following major attacks in 2025. Although talent shortages continue to challenge growth, accelerating AI adoption and sustained investment in digital infrastructure underpin the sector's long-term strength.

Businesses should balance opportunities in AI and connectivity with careful management of energy, cyber, supply-chain and workforce risks. Overall, the sector's fundamentals remain strong, although selective credit assessment remains prudent while external pressures persist.

Outlook: According to the Construction Products Association's Summer 2026 forecasts, the UK construction outlook has weakened.  Total  construction output now forecast to contract by 3.3% in 2026, compared with a decline of around 2.5% in the Spring forecast. The downgrade reflects weakening confidence, rising financing and construction costs, worsening project viability and subdued investment activity. Private housing (-10.0%) and repair, maintenance and improvement (RMI) activity (-8.0%) are expected to experience the sharpest declines, while infrastructure (+3.2%) remains the most resilient subsector, supported by energy, water and utility investment. A modest recovery of 1.2% is forecast for 2027.

Iveta Terefenkova, Sector Head for Construction, highlights that insolvency levels remain elevated, with construction continuing to account for around 17% of all corporate insolvencies in England and Wales and approximately 3,800 insolvencies over the past 12 months. Pressure is spreading beyond SMEs and subcontractors to mid-sized and established firms across multiple subsectors. Recent insolvencies among main contractors, specialist subcontractors, fit-out businesses and property services contractors suggest that financial stress is becoming increasingly widespread across the sector, rather than being limited to smaller firms or any single subsector.

Demand in the UK construction sector remains weak, although the pace of decline has eased. The S&P Global UK Construction PMI improved to 44.7 in July 2026 from 38.4 in June. While this indicates a slower contraction in activity, the index remains below the 50.0 threshold that separates expansion from contraction, highlighting that market conditions remain challenging.

Businesses should place greater emphasis on assessing the financial strength of customers and suppliers and strengthening supply chain resilience, as financial stress is increasingly affecting businesses of all sizes. Securing visibility over project pipelines, payment terms and subcontractor exposure will be critical in a market where project delays and business failures can quickly disrupt delivery and cash generation.

Outlook: The electronics sector has adapted well to the pressures carried over from 2025, supported by increased use of AI, stronger supply-chain planning and continued investment in innovation. Funding remains available and product demand provides grounds for measured optimism, although geopolitical tensions continue to create uncertainty and additional costs.

Chris Daker, Sector Head for Electronics, explains that the sector enters the second half of 2026 in a stronger position than a year ago, having improved its ability to manage disruption and respond to changing market conditions. Advances in automation and AI are supporting productivity and competitiveness, while continued investment in new technologies is helping businesses capture growth opportunities despite an uncertain external environment.

Businesses should focus on turning technological investment into tangible productivity gains, while maintaining contingency plans for supply-chain disruption and cost volatility. The outlook remains cautiously positive, although geopolitical risks could quickly alter market conditions.

Outlook: The UK energy sector remains in structural transition as it balances security, affordability and decarbonisation. Oil and gas prices remain elevated compared with historical averages, although volatility has eased compared with the sharp fluctuations experienced during Q2. Markets continue to be supported by geopolitical uncertainty, but conditions are considerably less stressed than during the 2022-2023 energy crisis.

Nicole White, Sector Head for Energy, highlights a widening divide within the sector: larger oil and gas and renewable producers may benefit from higher commodity prices and stronger balance sheets, while smaller players, particularly retail suppliers, face elevated risk. The scale and financial strength of larger operators leave them better placed to absorb volatility and continue investing through the transition, whereas smaller suppliers have less room to manage further cost shocks.

Businesses should monitor commodity exposure, liquidity and counterparty strength closely. Scale and balance-sheet resilience will be important as volatility continues and the transition requires further investment.

Outlook: The household equipment sector remains constrained by weak consumer confidence and pressure on disposable incomes. Retail sales volumes were expected to have fallen by 1.3% in April 2026, while household goods stores recorded declines both in April and across the three months to April. Consumers are delaying white-goods purchases or trading down, and subdued housing activity is limiting demand.

Chris Daker, Sector Head for Household Equipment, points to replacement purchases and steady interest in energy-efficient and smart appliances as sources of resilience, despite high inflation, interest rates and supply-chain disruption. Low consumer confidence is delaying discretionary purchases and encouraging some households to choose cheaper products. Continued weakness in the housing market is also limiting the natural flow of demand into the sector.

Businesses should plan for price-sensitive demand and continued margin pressure, while focusing on replacement-led, energy-efficient and smart product categories that may prove more defensive.

Outlook: Investment in machinery remains constrained as companies defer major projects amid economic uncertainty and tighter monetary conditions. Uneven global demand means export support is not enough to offset domestic weakness, while rising aluminium prices and broader commodity volatility are adding to costs at a time of limited pricing power.

Nicole White, Sector Head for Machinery & Equipment, says lenders are becoming more selective as they respond to the sector's cyclical nature and weaker recent performance. In this environment, businesses with stronger balance sheets, diversified end markets and clear investment strategies are likely to be better positioned to secure funding and navigate weaker demand. Companies that remain heavily exposed to a small number of customers, sectors or geographies may face greater pressure.

Businesses should maintain financial flexibility and prioritise investments that improve efficiency, productivity or customer value. While conditions remain challenging, firms that can strengthen competitiveness during the downturn will be best placed to benefit when industrial investment recovers.

Outlook: The metals sector is seeing better pricing and improved short-term trading conditions, with tariffs, quotas and geopolitical events encouraging stockpiling since February 2026. Some steel products have risen by 40% to 50%, and protective measures are expected to support conditions through the second half of the year. However, Europe continues to lag other regions and the sector remains financially fragile.

Nicole White, Sector Head for Metals, highlights front-loaded demand ahead of new UK quotas and expectations that quota exhaustion and 25% import duties will drive further price rises. At the same time, higher logistics, raw-material and energy costs are increasing financing and working-capital requirements. Stockpiling creates a risk that demand and prices could correct once buying normalises.

Businesses should test liquidity headroom, maintain pricing discipline and manage inventory carefully in case demand normalises after stockpiling. Exposure to construction, import costs and geopolitical disruption remains a key credit consideration.

Outlook: The UK paper and print sector presents a high risk profile, with significant variation by subsector. Packaging demand and sustainability-led opportunities provide support, but declining print revenues, cost inflation, overcapacity and insolvency pressure continue to weigh on the market.

Nicole White, Sector Head for Paper, notes that credit quality is becoming increasingly polarised: packaging-focused and technologically advanced businesses are proving more resilient, while traditional print operators face revenue erosion and squeezed margins. Sustainability-led demand offers opportunities for parts of the market, but overcapacity and insolvency pressure mean the gap between stronger and weaker operators is likely to remain pronounced.

Businesses should assess counterparties by subsector and business model rather than relying on the overall sector view. Technology, packaging exposure and the ability to absorb cost increases are key indicators of resilience.

Outlook: The UK pharmaceutical sector remains a resilient pillar of the economy, supported by strong demand and innovation. Nevertheless, pricing pressure and elevated input costs are creating challenges, while smaller firms are more exposed to liquidity and financing constraints.

Kieron Franks, Sector Head for Pharmaceuticals, highlights the importance of continued investment in technology and capacity to sustain long-term competitiveness. Strong demand and innovation support the sector overall, but smaller firms may find it harder to fund that investment while managing liquidity, pricing pressure and elevated input costs.

Businesses should distinguish between the sector’s strong overall fundamentals and the weaker financial position of some smaller operators. Careful monitoring of liquidity, funding access and cost exposure remains appropriate.

Outlook: UK retail remains under pressure as consumer confidence reacts to Middle East developments and cost-of-living concerns. Confidence recovered in May after a significant April fall, but savings capacity is uneven across age groups and spending on big-ticket and household goods remains weak. Labour changes, employer National Insurance increases, packaging taxes, supply-chain instability, energy costs and retail crime are all adding to margin pressure.

Chris Daker, Sector Head for Retail, notes that stronger mid-market players, most multiples, retail parks and convenience formats are showing greater resilience, while highly leveraged and private-equity-backed businesses remain more exposed to restructuring risk. Bricks-and-mortar decline continues, although retail parks and convenience channels are holding up better. AI and automation are also giving retailers opportunities to reduce workforce, advertising and operating costs.

Businesses should continue to track consumer demand, leverage and fixed-cost pressure closely. The ability to adapt quickly to changing consumer behaviour may be a key differentiator in the months ahead.

Outlook: Software and IT services remain fundamentally attractive and growth-oriented, but recent conditions are increasingly polarised. Scale, recurring revenue and AI capability are becoming the clearest differentiators, while the wider market is operating in a constrained environment focused on efficiency.

Chris Daker, Sector Head for Software & IT Services, says that customer spending has become more selective, with budgets increasingly directed towards solutions that deliver measurable productivity gains, automation or operational efficiency. As a result, businesses with clear value propositions and strong customer retention are outperforming, while less differentiated providers face a more competitive environment.

Businesses should focus on demonstrating tangible customer value, strengthening recurring revenue streams and maintaining investment discipline. Long-term prospects remain strong, but success will increasingly depend on the ability to translate innovation into commercial outcomes.

Outlook: The UK textiles and apparel sector is under heightened pressure from weak economic conditions and disruption linked to the Middle East crisis. Oil-price volatility, higher gas and petrochemical costs have lifted some textile input prices by 10% to 20%, while rerouting has added 10 to 14 days to transit times and pushed some freight costs up by as much as 300%. Demand remains stable but fragile and is heavily promotion-led.

Chris Daker, Sector Head for Textiles, highlights accelerating moves towards nearshoring, supplier diversification and larger inventory buffers as businesses seek greater supply-chain resilience. These structural shifts mark a move away from just-in-time models, but they can also increase working-capital requirements. With demand dependent on promotions rather than underlying volume growth, mid-market retailers remain under the greatest pressure.

Businesses should protect working capital and margins while reviewing sourcing and inventory strategies. Mid-market retailers remain particularly exposed to cost inflation, promotional demand and prolonged disruption.

Outlook: The UK transport sector is seeing moderate but uneven demand growth. Profitability is improving slightly, although high costs continue to constrain returns, while liquidity remains fragile and wider headwinds show little sign of easing.

Kieron Franks, Sector Head for Transport, describes the legal and business environment as supportive but challenging, with regulation, funding constraints and cost pressure shaping performance. Performance is uneven across transport segments, reflecting differences in demand dynamics, cost structures and funding availability. The persistence of headwinds means that operational improvement has not yet translated into a clear reduction in credit risk.

Businesses should maintain tight control of cash flow and costs, and assess counterparties by segment. Recovery is emerging, but uneven demand and fragile liquidity keep the sector at moderate risk.

Outlook: The UK transport equipment sector is benefiting from stronger demand than its underlying financial profile might suggest. Aerospace and defence continue to enjoy robust order books, aftermarket activity, public spending support and export visibility, while selected rail and maritime programmes are benefiting from policy priorities around clean technology and strategic capability. Nevertheless, profitability and liquidity remain under strain.

Nicole White, Sector Head for Transport Equipment, notes that oil, transport and metals costs rose again in Q2, supply chains are not fully repaired and rolling-stock procurement remains erratic. Smaller suppliers are more exposed than prime contractors. While strong end-market demand is supporting production and revenue visibility, the benefits are not being felt evenly across the value chain, with larger contractors generally better positioned to absorb cost and funding pressures than specialist and lower-tier suppliers.

Businesses should look beyond order-book strength and assess whether cash generation, balance-sheet capacity and supplier resilience are keeping pace with operational activity. Sustained improvement will depend on stronger financial resilience across the supply chain, not just continued demand growth.

To discover this year’s global sector outlook, check out our 2026 Sector Atlas.