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The UK economy faces a “zombie apocalypse” in the coming year, as years of tough trading conditions forces thousands of unproductive firms to the wall, an influential left-leaning think tank has predicted.
The Resolution Foundation forecasts a “triple whammy” of multi-year increases in interest rates, energy prices and the minimum wage will lead to the of collapse low-productivity firms, which will be replaced by more productive equivalents.
It comes after the share of jobs destroyed by closing firms reached its highest level since 2011 with the number of company insolvencies annually rising 17 per cent in October 2025 to 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,” Ruth Curtice, chief executive of the Resolution Foundation, said.
But Curtice also warned this came with a downside of rising unemployment, which surged past five per cent in 2025 as firms grappled with the rising cost pressures from Rachel Reeves’ employer’s national insurance tax grab and wage growth.
The think tax said the purge of ‘low productivity’ firms would provide encouraging signs for future productivity growth if it made room for “more and better jobs to be created in growing firms,” but the foundation warned it hadn’t seen such a reaction yet.
“Policy makers will need to redouble efforts to address this problem,” Curtice said.
Brits’ disposable income on ‘growth crawl’
Since taking power in July 2024, Labour’s efforts for economic growth have waned with the Office for National Statistics revealing a “slowing” picture in the second half of 2025.
The UK economy shrank 0.1 per cent in October – the second consecutive month of decline – as businesses paused investments amid consistent speculation about upcoming tax hikes in Rachel Reeves’ second Autumn Budget, leading to anticipation around a quarterly contraction.
In her November Budget, Reeves hiked taxes to the tune of £26bn with a freeze on income tax thresholds set to lump Brits with a higher tax bill as wages grow.
The Resolution Foundation said Brits take-home pay would suffer a “growth crawl” with Real Household Disposable Income (RHDI) per capita forecast to grow by just 0.2 per cent in 2026.
But growing income is set to be a major dividing line with pensioners and benefit claimants to benefit from rising government spending.
The Centre for Policy Studies (CPS) said Labour is “quietly hammering” workers with taxes whilst those on the state pension reap the rewards through the triple lock agreement, which guarantees an income increase of at least 2.5 per cent.
Over the next five years welfare spending is set to rise by £73.2bn to £406.2bn, the Office for Budget Responsibility calculated, with an extra £34bn due to the triple lock.
The Resolution Foundation has warned the “country is in the middle of a slow but consequential transition with fewer people of working age; a more fragile politics; higher taxes; and an economy that urgently needs new firms and new jobs to replace the old.”
The think tank suggested 2026 could mark the beginning of a “new era” where deaths outnumbering births becomes the common trend, piling further pressure on the public purse to strum up tax receipts to fund spending.
“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 said.
