The first quarter of 2026 has produced a sobering set of data points about the health of the UK business environment, with company registrations falling 8% compared with Q1 2025 while closures continued to outpace new start-ups for the second consecutive quarter. Job vacancies have fallen to near five-year lows as rising wage costs, increased National Insurance contributions and persistent geopolitical uncertainty lead businesses — particularly in the retail, hospitality and professional services sectors — to delay hiring decisions or reduce headcount.
The data picture
The Companies House figures, published last week, showed a notable fall in new business registrations across most sectors. The sharpest declines were in retail and food service — industries already struggling with higher employment costs following April 2025’s increase in the employer National Insurance rate and the upward adjustment to the National Living Wage. The reduction in new incorporations is being closely watched by economists as a leading indicator of future employment and investment intentions.
Separately, data from the Recruitment and Employment Confederation and KPMG showed that permanent hiring in London recorded its first rise in a year in March 2026, offering a tentative counterpoint to the overall picture of caution. But the improvement was concentrated in financial services and professional services — sectors less exposed to the cost pressures affecting consumer-facing businesses — and was insufficient to shift the overall trend of declining vacancy numbers.
The Iran factor and energy costs
The outbreak of conflict involving Iran in late February has added a further layer of uncertainty to what was already a challenging operating environment. Independent fish and chip shops, a bellwether for the pressures on food-intensive SMEs, are facing severe cost pressures, with fuel and ingredient costs rising sharply since the conflict began. Industry bodies warn that further cost increases from suppliers could push many owner-operated food businesses into closure in the coming months.
The CBI’s 2026 policy priorities, published earlier this year, focused on three missions: lowering the cost of doing business, accelerating delivery of infrastructure and planning decisions, and keeping the UK competitive in global markets. Business leaders have been broadly supportive of the government’s growth agenda in principle, but are increasingly vocal in their concern that the timeline for practical relief from excessive regulation, business rates complexity and planning delays is too slow to have a material impact before the end of the current Parliament.
Government response
The government points to a more positive set of indicators to argue that the underlying trajectory remains upward. UK retail sales rose 0.7% in March, driven partly by fuel stockpiling and stronger clothing sales. Government borrowing declined to £132 billion in 2025-26, supported by higher tax revenues. And the FTSE 100 has risen 12% since the start of 2026, suggesting that equity markets remain constructive on the medium-term UK outlook despite the near-term headwinds. The Chancellor is expected to use a series of business engagement events in May to make the case that the government’s investment in infrastructure, AI and clean energy is creating the conditions for a more durable growth recovery in the second half of the decade.
— Thomas Hargreaves, London Capital Post
