UK companies face a challenging second half to the year as they navigate the uncertainties of US trade tariffs, sluggish domestic growth and an increasing risk of non-payment.
With summer now in full swing, many UK business leaders will be hoping for a well-deserved break after a roller coaster start to the year. But what can they expect when they return?
Trade tensions, geopolitical risks and fiscal challenges continue to weigh heavily on both the UK and world economy. The US government’s last-minute extension on the introduction of reciprocal tariffs provided some hope on July 8th, but it also prolongs uncertainty and instability for the global economy. Amid record-high levels of uncertainty, we expect global growth will remain sluggish at +2.5% in 2025, the slowest since 2008, outside of recession periods.
Adding to geopolitical uncertainties, recent heatwaves across Southern and Central Europe, the US and China could carry significant economic costs. With extreme temperatures known to reduce labor productivity, total economic losses for Europe from the extreme temperatures are estimated at -0.5pp, and as high as -1.4pp for Spain. Put another way, each day of extreme heat (above 32°C) is equivalent to half a day of strikes.
Growth in the UK economy is also likely to remain tepid, growing at just +0.9% in 2025 before strengthening slightly to +1.2% in 2026. The UK economy faces major headwinds, including the international effects of US trade policy and significant domestic challenges, including potential tax hikes, high inflation and elevated borrowing costs. At 3.6%, UK inflation in June unexpectedly increased from 3.4% in May, peaking at its highest for more than a year and driven by fuel prices and food. We don’t expect inflation to hit the Bank of England (BoE)’s target of 2% any time before Q4 2026.
Business sentiment is also fragile. Increased public capital spending and strengthening real wage growth are positives for the UK, as is the expected easing of borrowing costs: We see the BoE’s base rate coming down to 3.75% in December 2025 from 4.25% presently, and reaching 3.25% by the end of 2026. But with more tax hikes likely to be announced in the autumn budget, business sentiment could deteriorate, a key downside risk for the UK’s growth outlook next year.
Chaotic US-trade policy is taking its toll, denting exporters confidence. The latest Allianz Trade Global Survey, which polled 4,500 exporters before and after Liberation Day, found that close to 60% of firms expect a negative impact from the trade war, and 45% expect export turnover to decline. Despite the pause in reciprocal tariffs and a truce between the US and China, the US global import tariff is still at the highest level since 1940. We estimate resulting global export losses could reach USD 305bn in 2025.
The UK’s struggling export sector received a small reprieve when the UK and US agreed a trade deal in May – the first country to do so following ‘Liberation Day’ on April 2. While the agreement eases tensions, the UK will still have to pay a hefty price for access to the US market. We estimate the US trade weighted tariff rate on UK imports will be lowered from 9.1% to 6.1%, still much higher than 1% pre-Trump and leading to export losses of USD3bn (GBP2.3bn).
Faced with an unpredictable trade environment, UK companies are increasingly looking to cut costs, but also to diversify. Around one-third have already found new markets for exports and supply, while firms are generally now more willing to expand into new business lines and to increase capital expenditures in strategic areas (60% of UK firms against 49% before Liberation Day).
With lingering uncertainty from tariffs and geopolitics, UK firms face elevated levels of credit risk going forward. UK insolvencies have been on the decline this year, but remain above pre-pandemic levels, while the global picture points to additional risks: Global insolvencies are expected to show an increase of +6.5% in Q1 2025. In addition, sector specific risks are emerging, particularly in the automotive industry.
Payment terms and non-payment risk are also deteriorating. Over half (56%) of UK companies are expecting a rise in non-payment risk over the next six to 12 months, compared with 48% worldwide, according to Allianz research. Approximately 75% of UK companies receive payments between 30 and 70 days, compared with 70% worldwide. Manufacturing firms in particular are waiting the longest to be paid, as are larger firms. This suggests that major companies are increasingly taking on the role of an invisible bank for smaller companies.
Trade credit insurance protects against the risk of non-payment and can help improve cash flow and support growth. In today’s uncertain trade environment, trade credit insurance can help those firms looking to expand into new markets, providing valuable insights into customer creditworthiness, and facilitating access to financing.
Allianz Trade is the global leader in trade credit insurance and credit management, offering tailored solutions to mitigate the risks associated with bad debt, thereby ensuring the financial stability of businesses. Our products and services help companies with risk management, cash flow management, accounts receivables protection, Surety bonds, Business Fraud Insurance, debt collection processes and e-commerce credit insurance ensuring the financial resilience for our client’s businesses. Our expertise in risk mitigation and finance positions us as trusted advisors, enabling businesses aspiring for global success to expand into international markets with confidence.
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