When we published our restructuring and insolvency outlook for 2026 in January, falling inflation and the prospect of further reductions in Bank Rate offered some grounds for cautious optimism. Ten months on, the economic backdrop looks very different, as does the occupant of No. 10.
So, before the Christmas run-in begins in earnest, we thought it was a good time to revisit our January predictions: where did we get it right, where has the year surprised us, and what should businesses and restructuring practitioners be watching as 2026 draws to a close?
This is the first in a series of posts from the Stevens and Bolton’s Restructuring & Insolvency team. We start with the economic picture, and the timing could hardly be better: John Healy’s (distinctly beige) Budget is now behind us and, hot on its heels, the Bank of England has increased Bank Rate for the first time in more than three years.
A very different economic outlook
In January, there were signs that economic conditions might finally be starting to improve. Bank Rate had been reduced to 3.75% in December 2025, inflation was expected to fall and further rate reductions appeared likely during 2026. Events have since altered that picture considerably. Conflict in the Middle East and renewed pressure on energy prices have effectively reversed the direction of travel expected at the beginning of the year.
Rather than continuing its downward trajectory towards the Bank’s 2% target, CPI inflation increased to 3.5% in September, with the Bank now expecting it to rise to around 5% by the middle of next year. On 5 November, the Bank of England responded by raising Bank Rate from 3.75% to 4%, its first increase in more than three years. The Monetary Policy Committee voted 8–1 for the increase, with the dissenting member preferring a larger rise to 4.25%.
For businesses already facing increased costs following the November 2025 Budget, the renewed prospect of higher borrowing costs could hardly have come at a worse time. Businesses that had been budgeting for progressively cheaper debt may instead find themselves refinancing into a higher-rate environment, while simultaneously absorbing renewed energy and other input-cost pressures. The Bank has stressed that interest rates are not on a pre-set path, but further increases remain a real possibility.
Notwithstanding this significantly less benign economic backdrop, our prediction that overall restructuring and insolvency activity this year would remain broadly in line with 2025 levels has largely been borne out. Official figures from the Insolvency Service suggest that there has in fact been a modest year-on-year reduction in corporate insolvencies. Our experience on the ground, however, has been of increased activity in the mid-market, particularly in relation to pre-pack transactions and claims against directors.
Over the past few years, persistently high levels of business failure appear to have become the new normal. Against a backdrop of geopolitical uncertainty, pressure on consumer spending and the renewed prospect of higher financing and operating costs, highly leveraged businesses and those approaching a refinancing cliff may find the coming year particularly challenging.
