Resolution Foundation warns UK faces ‘triple whammy’ of rising interest rates, energy prices and minimum wage increases
The UK economy is facing a “zombie apocalypse” over the next 12 months, as prolonged challenging trading conditions force thousands of underperforming companies out of business, according to predictions from an influential left-leaning think tank.
The Resolution Foundation anticipates a “triple whammy” of sustained rises in interest rates, energy costs and the minimum wage will trigger the demise of low-productivity enterprises, paving the way for more efficient replacements to emerge.
This follows the proportion of jobs lost through business closures reaching its peak since 2011, with annual company insolvencies climbing 17 per cent in October 2025 to 2,029.
Ruth Curtice, chief executive of the Resolution Foundation, said: “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.”
However, Curtice cautioned this development brings the unwelcome consequence of mounting unemployment, which soared beyond five per cent in 2025 as businesses wrestled with escalating cost pressures from Rachel Reeves’ employer’s national insurance tax grab and wage growth, as reported by City AM.
The think tank suggested the elimination of ‘low productivity’ enterprises could signal positive developments for future productivity expansion if it creates space for “more and better jobs to be created in growing firms,” though the foundation noted it had yet to witness such a response.
“Policy makers will need to redouble efforts to address this problem,” Curtice said.
Since assuming office in July 2024, Labour’s economic growth ambitions have faltered with the Office for National Statistics painting a picture of deceleration in the latter half of 2025.
The UK economy contracted by 0.1 per cent in October – marking the second successive month of decline – as firms delayed investment decisions whilst persistent rumours swirled about impending tax increases in Rachel Reeves’ second Autumn Budget, fuelling expectations of a quarterly downturn.
During her November Budget, Reeves imposed tax rises totalling £26bn alongside a freeze on income tax thresholds that will saddle Britons with steeper tax bills as earnings increase.
The Resolution Foundation warned that Britons’ take-home pay would endure a “growth crawl” with Real Household Disposable Income (RHDI) per capita projected to expand by merely 0.2 per cent in 2026.
However, rising incomes are poised to create a significant divide with pensioners and benefit recipients set to gain from increased government expenditure.
The Centre for Policy Studies (CPS) argued that Labour is “quietly hammering” workers with taxation whilst state pension recipients enjoy the benefits through the triple lock mechanism, which ensures income rises of at least 2.5 per cent.
Across the coming five years, welfare expenditure is projected to climb by £73.2bn to £406.2bn, the Office for Budget Responsibility estimated, with an additional £34bn attributed to the triple lock. The Resolution Foundation has issued a stark warning that 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 posits that 2026 could herald a “new era” where deaths outnumber births, adding further strain on public finances to generate tax revenues for 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 added.
