UK Braces for Job Losses as 'Zombie' Firms Face Collapse

Hannah Ellis

Economic

Remarks of Officials

Central Bank

Data Interpretation

Summary:

"Zombie" firms' demise in 2026 portends UK job losses, yet could signal a significant productivity revival.

The UK is heading for a significant rise in unemployment in 2026 as financially weak "zombie" companies face a wave of failures, according to a new report from the Resolution Foundation.

These struggling businesses, which have barely managed to cover their costs for years, are now confronting a "triple whammy" of rising interest rates, higher energy prices, and an increased minimum wage. The thinktank warns that while the collapse of these firms could ultimately boost the economy's productivity, the immediate consequence will likely be a sharp increase in job losses.

The UK's Jobcentre Plus offices could see increased activity as unemployment is forecast to rise in 2026.

The unemployment rate already hit 5.1% in October, its highest level in a decade outside of the pandemic period, as employers grew cautious about hiring ahead of the autumn budget.

A 'Triple Whammy' Threatens UK Businesses

For years, economists have pointed to so-called "zombie firms" as a drag on the UK economy. These companies generate just enough revenue to service their debt but lack the profits to invest or grow, tying up resources that could be used more productively elsewhere. Their survival was largely enabled by the era of low interest rates following the 2008 financial crisis, which made borrowing cheap.

That era is over. Businesses have been squeezed by 14 consecutive interest rate hikes from the Bank of England between December 2021 and August 2023. Although the central bank has since cut its base rate six times from a peak of 5.25% to 3.75%, operating costs for most firms remain elevated. This new economic reality, combined with high energy costs and rising wage bills, could be the final straw for many underperforming companies.

A 'Zombie Apocalypse' Could Boost Productivity

While the short-term outlook is painful, the Resolution Foundation suggests 2026 could be a crucial "turning point" for the UK's stagnant productivity. The failure of less efficient firms could pave the way for a process of "creative destruction," where new, more innovative companies emerge to take their place.

"There are early and encouraging signs of a mild zombie apocalypse," said Ruth Curtice, chief executive of the Resolution Foundation. She noted that higher interest rates and minimum wages are helping to "kill off struggling firms and leave the door open for new, more productive ones to replace them." The adoption of artificial intelligence could also contribute to this productivity revival.

However, Curtice stressed the immediate downside. "The short-term impact could be job displacement and higher unemployment," she warned. "Policymakers will need to redouble efforts to address this problem."

Business Confidence Hits a Three-Year Low

The pressure on businesses is already visible in recent data. A separate report from the British Chambers of Commerce (BCC) found that business confidence fell to a three-year low in the final quarter of 2025.

A survey of over 4,600 firms conducted between November 10 and December 8 revealed a pessimistic outlook:

• Top Concerns: Tax was the biggest worry for businesses, followed closely by inflation.

• Turnover Expectations: Less than half (46%) of companies expected their turnover to increase in the next year, while 24% anticipated a decrease.

• Investment Plans: Only 19% of firms had increased their investment, while 27% had scaled back their plans.

"Our data shows more clouds have gathered over business confidence, and the outlook for SMEs in 2026 is unsettled," said David Bharier, head of research at the BCC.

The Human Cost: Living Standards at Risk

The Resolution Foundation urged the government to focus on the human impact of this economic shift. While the potential for long-term productivity growth is welcome, the immediate challenge is to support households through job losses and stagnant income growth.

"Amidst this change one thing that isn't changing enough is disposable income growth, which is set to grow at mediocre rates for the rest of the parliament," said Curtice.

She concluded that while there is hope for an economic turning point, action is needed to ensure it translates into better living standards for everyone.

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Hannah Ellis

Remarks of Officials

Economic

Daily News

Political

Xi Jinping Hosts Irish PM in Strategic Push

Chinese President Xi Jinping met with Irish Prime Minister Micheál Martin in Beijing, signaling a clear intent to deepen economic and trade ties with Ireland as a strategic gateway to improving strained relations with the European Union.

In their meeting at the Great Hall of the People, Xi framed the future of China-Ireland relations around mutual respect and win-win outcomes. This engagement is part of a broader Chinese strategy to connect with individual EU member states amid ongoing friction with Brussels.

By strengthening bilateral partnerships, Beijing aims to indirectly convey its policy positions and objectives to the wider European bloc.

Beijing's Vision for China-EU Relations

President Xi urged the EU to adopt a long-term, objective perspective on its relationship with China, emphasizing cooperation over conflict. He directly appealed to Ireland to leverage its influence for the stable development of China-EU relations.

This request carries significant weight, as Ireland is set to assume the rotating presidency of the EU Council in the latter half of this year.

China expressed specific interest in collaborating with Ireland across several key sectors, including:

• Artificial intelligence

• The digital economy

• Pharmaceuticals

• Tourism

Xi also called for greater coordination on the world stage to uphold multilateralism and international justice.

Ireland Navigates a Delicate Balance

Prime Minister Martin, the first Irish Taoiseach to visit Beijing in 14 years, acknowledged China's "indispensable role" in global affairs, particularly in peacekeeping operations. He also firmly reiterated Ireland's commitment to open trade.

"We believe it's fundamental that we try and work towards open trade, recognising the interdependence of the world," Martin stated regarding economic ties with China.

His visit, which concludes with a trip to Shanghai, occurs under the shadow of escalating trade disputes. Just two weeks prior, Beijing imposed provisional tariffs of up to 42.7% on dairy products from the European Union. This move is widely interpreted as retaliation against the EU's decision to levy tariffs on Chinese electric vehicles.

The situation places Ireland in a complex position. As one of Europe's largest dairy exporters, with annual shipments valued at approximately €6 billion, it is directly affected by the new tariffs. At the same time, Ireland was among the EU nations that voted in favor of the tariffs on Chinese EVs, highlighting the intricate economic and political pressures at play.

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James Riley

Economic

Daily News

Remarks of Officials

Political

Data Interpretation

Middle East Situation

Violent confrontations between protesters and security forces have erupted across Iran, marking the second week of nationwide demonstrations fueled by a severe cost-of-living crisis. Rights groups and local media reported escalating unrest over the weekend, signaling a significant challenge to the country's leadership.

Figure 1: Demonstrations have erupted across Iran, with scenes of unrest reported in major urban centers as citizens protest soaring inflation and economic hardship.

The protests, which began on December 28 with a shopkeepers' strike in Tehran, have since spread to over 220 locations across 26 of Iran's 31 provinces.

Nationwide Unrest Spreads, Casualty Count Rises

The unrest has become the most serious wave of protest in Iran since the 2022 demonstrations following the death of 22-year-old Jina Mahsa Amini in police custody. While smaller in scale, the current protests present a new test for Supreme Leader Ayatollah Ali Khamenei, especially after a brief war with Israel in June that damaged the nation's nuclear facilities.

According to an AFP tally of official reports, at least 12 people have been killed since the demonstrations began, including members of the security forces. Human rights organizations provide further details on the scope of the crackdown:

• Arrests: The US-based Human Rights Activists News Agency (HRANA) reports that more than 990 people have been arrested.

• Fatalities: Norway-based groups Hengaw and Iran Human Rights stated that four Kurdish protesters were killed in Malekshahi county on Saturday, with dozens more wounded.

• Official Reports: Iranian state media, which has provided limited coverage of the events, reported that one member of the security forces was killed by "rioters."

HRANA confirmed overnight protests in major cities, including Tehran and Shiraz, as well as in western regions of the country.

Trump Issues Stark Warning to Tehran

The escalating situation has drawn a sharp response from the United States. President Donald Trump issued a direct threat to Iran on Sunday, stating the regime would get "hit very hard" by the US if more protesters are killed.

"We're watching it very closely," Trump told reporters. "If they start killing people like they have in the past, I think they're going to get hit very hard by the United States."

This statement followed a warning from the previous week, in which Trump cautioned that US intervention was possible if Iran "violently kills peaceful protesters."

What's Fueling the Protests in Iran?

The demonstrations are rooted in a deep economic crisis, exacerbated by United Nations sanctions that triggered a sharp currency collapse. The Iranian rial has plummeted, with one US dollar now worth approximately 1.4 million rials.

This has contributed to a staggering inflation rate of around 40%, causing the prices of essential goods like meat and rice to rise significantly. What began as a protest by traders in Tehran has now evolved into widespread calls for fundamental change across the nation.

In an effort to quell the unrest, the government announced a temporary monthly allowance for citizens, equivalent to about $7, to be distributed for four months.

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Owen Li

Remarks of Officials

Data Interpretation

Economic

Central Bank

Thailand's central bank is preparing to review how it calculates inflation, acknowledging that official figures showing persistently low price growth fail to capture the high cost of living felt by households across the country.

The plan was revealed in the minutes from the Bank of Thailand's latest policy meeting, signaling a potential overhaul of a key economic indicator.

The Problem: Data vs. Reality

According to the Bank of Thailand's Monetary Policy Committee, the country's official inflation statistics do not fully align with the financial pressures ordinary people face. The committee noted a significant gap between the low inflation numbers and the "elevated cost of living faced by households."

This disconnect has prompted discussions with relevant government agencies to address the shortcomings in the current inflation basket.

Key Areas Skewing the Numbers

The central bank identified several categories within the inflation basket that exhibit "persistent rigidity," meaning their prices in the official data do not move in a way that reflects real-world costs. These areas include:

• Residential rents

• Automobiles

• Telecommunication services

Improvements are now planned for both the data inputs and the calculation methodology used to measure price changes in these and other sectors. The central bank did not provide a specific timeline for the review. According to its website, the Commerce Ministry typically updates inflation calculations every four to five years.

Broader Context: A Decade of Missed Targets

The move comes as Thailand grapples with weak price pressures. The nation's consumer price index has been in negative territory since April, driven largely by supply-side factors.

More broadly, the Bank of Thailand has struggled to keep inflation within its target range of 1% to 3% for most of the past decade. Despite this history of undershooting, the Cabinet approved a decision last month to maintain the same inflation target for the current year.

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Owen Li

Economic

Daily News

Remarks of Officials

Commodity

Central Bank

Data Interpretation

Indonesia’s trade surplus widened to $2.66 billion in November, but the figure fell short of market expectations amid a significant drop in key commodity exports. At the same time, inflation in December accelerated to its highest level in 20 months, creating a mixed economic outlook for the nation.

A Deeper Dive into Trade Performance

The November trade surplus marked an increase from October's $2.39 billion but missed the $3.06 billion forecast in a Reuters poll. This outcome reflects underlying weakness in the country's export sector.

Exports fell 6.60% year-on-year in November to $22.52 billion, a much steeper decline than the 0.53% drop analysts had anticipated. According to Statistics Indonesia, the slump was driven by lower export values for top commodities, including coal, palm oil, nickel, and copper.

Meanwhile, imports rose by a modest 0.46% from a year earlier to $19.86 billion. This was also below the 3.2% increase that had been forecast. For the January to November 2025 period, Southeast Asia's largest economy has maintained an expanding trade surplus, partly because manufacturers front-loaded shipments earlier in the year to get ahead of U.S. tariffs.

Container ships at the Port of Tanjung Priok highlight Indonesia's role in global trade, though recent data points to a slowdown in key commodity exports.

Inflationary Pressures Mount

On the domestic front, annual inflation picked up to 2.92% in December, climbing above the median analyst forecast of 2.73%. This marks the highest inflation rate since April 2024.

The price surge was attributed to several factors:

• Higher prices for gold and select food items.

• Distribution channel disruptions in northern Sumatra caused by floods and landslides.

Despite the increase, the inflation rate remains within the central bank's target range of 1.5% to 3.5%. Core inflation, which excludes volatile food and government-controlled prices, was recorded at 2.38% in December, just under the 2.40% expected in the poll.

Economic Outlook and Policy Response

According to Permata Bank economist Faisal Rachman, Indonesia's trade surplus is expected to persist but will likely narrow gradually. He predicts that import growth will eventually outpace exports as the government adopts an increasingly pro-growth policy stance.

Rachman also noted that with inflation contained within Bank Indonesia's target, the central bank has room to maintain its accommodative monetary policy.

To strengthen its global trade position, Indonesia is actively diversifying its export markets. The government has finalized free trade negotiations with the European Union and signed a deal with the Russian-led Eurasian Economic Union. Additionally, Jakarta has set a target to sign a U.S. tariff deal by the end of this month.

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Gerik

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Forex

Dollar Strength Reasserts as Focus Shifts to U.S. Macro Outlook

The U.S. dollar kicked off the first full trading week of 2026 with renewed strength, reaching a three-and-a-half-week high against the euro and a two-week peak versus the yen. While headlines were dominated by the dramatic U.S. operation in Venezuela that led to the capture of President Nicolas Maduro, currency markets displayed minimal sensitivity to the geopolitical shock. This reaction highlights the prevailing influence of domestic macroeconomic expectations over short-term political risk, suggesting a correlation rather than a causal link between geopolitical events and currency movements in this instance.

Investor sentiment was firmly anchored in anticipation of several high-impact U.S. economic releases throughout the week. From Monday’s ISM manufacturing data to Friday’s closely watched non-farm payrolls report, the economic calendar holds the potential to clarify the Federal Reserve's policy direction in early 2026. Currency traders appear to be positioning around the notion that the U.S. economy’s recent resilience may delay or reduce the scope of interest rate cuts that markets had previously priced in.

The dollar gained 0.1% to trade at $1.1704 per euro, its strongest since mid-December, and rose 0.2% to 157.08 yen, having touched 157.255 for the first time since December 22. These gains reinforce the role of data-driven expectations in foreign exchange markets and reflect investors’ shifting views on how aggressively the Fed might ease monetary policy this year.

Venezuela Tensions Largely Discounted by Currency Markets

Despite the gravity of the U.S. military action in Venezuela and the detention of a sitting head of state, the FX market response was muted. This restraint may indicate that traders do not see immediate contagion or economic spillovers from the event, reinforcing the notion that macroeconomic policy, not geopolitical uncertainty, is currently the dominant driver of currency valuation.

Analyst Kyle Rodda from Capital.com remarked that the FX complex remains primarily shaped by expectations around the Fed, not by external risk events such as Venezuela. This view supports the interpretation that the relationship between geopolitical shocks and dollar movements, in this case, is at best incidental and not indicative of a direct cause-and-effect pathway.

Fed Leadership Transition Adds Another Layer of Uncertainty

Investor attention is also turning to the upcoming leadership change at the Federal Reserve. President Donald Trump has pledged to nominate a successor to Jerome Powell whose term ends in May and has signaled that his pick will strongly favor looser monetary policy. The identity of the new Fed chair could significantly shape expectations for rate cuts, inflation control, and long-term currency stability, though the announcement is not expected to shift markets in the near term unless accompanied by immediate policy signals.

The dollar’s strength was also evident against other major currencies. It advanced 0.1% to $1.3443 per British pound and 0.1% to C$1.3745. Meanwhile, the Australian dollar slipped 0.2% to $0.6682, a reflection of both U.S. dollar momentum and possible concerns over China’s slowing service sector growth, which could weigh on commodity-linked currencies like the Aussie. This divergence suggests a more complex interplay of global data, with currency valuations increasingly influenced by differentiated growth and policy expectations rather than synchronized global trends.

The dollar’s upward momentum at the start of 2026 reveals that traders are prioritizing economic fundamentals particularly U.S. macro data and monetary policy expectations over geopolitical turbulence. While events like the Venezuela raid command headlines, their influence on currency markets remains limited unless they alter economic forecasts or trigger systemic risks. In this case, the modest dollar rally reinforces a macro-driven narrative: traders are positioning for a scenario where the Fed remains cautious on easing, and where rate differentials continue to support dollar strength in the near term.

Source: Reuters

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Escalation Signals From Washington

U.S. President Donald Trump stated that a second military strike against Venezuela remains possible if remaining members of the Maduro administration refuse to cooperate with U.S. efforts to stabilize the country. Speaking aboard Air Force One, Trump framed the operation as unfinished, implying that Washington’s next steps depend on the behavior of officials still controlling state institutions. This positioning suggests a direct link between cooperation by the current power structure and the likelihood of additional military pressure.

Trump also broadened the scope of potential action, indicating that Colombia and Mexico could face similar measures if they fail to reduce illicit drug flows into the United States. These remarks point to a wider regional security doctrine where military leverage is presented as a tool for enforcing compliance on transnational crime and migration issues.

Maduro’s Capture And The Power Vacuum

Nicolas Maduro remains in U.S. custody in New York, awaiting a court appearance on drug-related charges first filed in 2020. His arrest has created deep political ambiguity inside Venezuela, where senior officials loyal to Maduro continue to govern. Vice President Delcy Rodriguez, who also serves as oil minister, has assumed interim leadership with the endorsement of Venezuela’s top court, while insisting that Maduro remains the legitimate president.

This institutional continuity highlights that the removal of a single leader does not automatically dismantle the governing apparatus. The persistence of Maduro-aligned officials shows that regime resilience is correlated with control over security forces, courts, and the oil sector rather than personal leadership alone.

Conflicting Narratives On Cooperation

Trump claimed that Rodriguez may face severe consequences if she refuses to cooperate with the United States, though Rodriguez has publicly denied any willingness to work with Washington. Venezuelan authorities, including Interior Minister Diosdado Cabello, have labeled the detentions of Maduro and his wife Cilia Flores a kidnapping, reinforcing the narrative of foreign aggression.

These opposing statements illustrate a breakdown in diplomatic signaling. While Washington frames engagement as conditional collaboration, Caracas presents the same actions as violations of sovereignty, increasing the probability of prolonged confrontation rather than negotiated resolution.

Oil, Migration, And Strategic Motivations

The U.S. administration has emphasized that Maduro’s capture was a law enforcement operation designed to enforce criminal accountability. However, Trump also stated that U.S. oil companies require full access to Venezuela’s vast reserves and linked the intervention to migration pressures, alleging that Venezuelan authorities allowed criminals and drug users to move into the United States.

This alignment of security, migration, and energy objectives suggests an integrated strategic logic. Control over oil infrastructure is closely tied to economic recovery prospects for Venezuela, while migration flows influence domestic U.S. political priorities. The overlap between these factors indicates a reinforcing relationship rather than coincidence.

Human And Regional Consequences

Venezuela’s defense minister reported casualties among soldiers, civilians, and Maduro’s security detail during the raid, while Cuba stated that 32 of its citizens were killed. These claims, if substantiated, raise serious questions about proportionality and legality under international norms. Russia and China, both key allies of Venezuela, criticized the operation, and the U.N. Security Council scheduled an emergency meeting to address the situation.

Within Venezuela, public life continues under tension. Streets in Caracas remained relatively quiet, with limited security presence and cautious daily activity. Some citizens stocked up on essentials, reflecting fear-driven behavior that often accompanies political instability. This response shows how uncertainty at the leadership level translates into everyday economic anxiety.

Political Futures And Democratic Limits

Trump dismissed the prospect of opposition leader Maria Corina Machado taking power, citing insufficient support, despite claims by the opposition that Edmundo Gonzalez won the disputed 2024 election. This stance signals that Washington’s immediate priority lies in security and control rather than rapid democratic transition.

U.S. Senate Democratic leader Chuck Schumer warned that the administration has not clarified the duration or scale of American involvement, raising concerns about an open-ended conflict. Lawmakers are considering measures to limit further action, though Republican control of Congress complicates oversight efforts.

A Region Entering A Prolonged Period Of Uncertainty

Venezuela’s economic collapse, which pushed roughly one in five citizens abroad, provides the backdrop for current events. Once one of Latin America’s wealthiest nations, its decline under Hugo Chavez and later Maduro underscores how political centralization and oil dependence interact with long-term economic fragility.

Trump’s remarks indicate that future developments will hinge on compliance, oil sector restructuring, and regional security cooperation. Whether these pressures produce stabilization or deepen resistance remains unclear, but the current trajectory suggests that Venezuela’s crisis is evolving into a broader test of U.S. influence in Latin America rather than a contained intervention.

Source: Reuters

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UK Braces for Job Losses as 'Zombie' Firms Face Collapse

The UK's Jobcentre Plus offices could see increased activity as unemployment is forecast to rise in 2026.

A 'Triple Whammy' Threatens UK Businesses

A 'Zombie Apocalypse' Could Boost Productivity

Business Confidence Hits a Three-Year Low

The Human Cost: Living Standards at Risk

China Courts Ireland Amid Brewing EU Trade Spat

Xi Jinping Hosts Irish PM in Strategic Push

Beijing's Vision for China-EU Relations

Ireland Navigates a Delicate Balance

Iran Protests Turn Deadly Amid Economic Crisis

Figure 1: Demonstrations have erupted across Iran, with scenes of unrest reported in major urban centers as citizens protest soaring inflation and economic hardship.

Nationwide Unrest Spreads, Casualty Count Rises

Trump Issues Stark Warning to Tehran

What's Fueling the Protests in Iran?

Thailand to Revamp Inflation Metric Amid High Living Costs

The Problem: Data vs. Reality

Key Areas Skewing the Numbers

Broader Context: A Decade of Missed Targets

Indonesia's Trade Surplus Grows as Inflation Hits 20-Month High

A Deeper Dive into Trade Performance

Container ships at the Port of Tanjung Priok highlight Indonesia's role in global trade, though recent data points to a slowdown in key commodity exports.

Inflationary Pressures Mount

Economic Outlook and Policy Response

Dollar Strengthens Amid Fed Rate Speculations, Traders Sideline Venezuela Tensions

Dollar Strength Reasserts as Focus Shifts to U.S. Macro Outlook

Venezuela Tensions Largely Discounted by Currency Markets

Fed Leadership Transition Adds Another Layer of Uncertainty

Source: Reuters

Trump Signals Willingness to Escalate Venezuela Intervention as Uncertainty Deepens Across Latin America

Escalation Signals From Washington

Maduro’s Capture And The Power Vacuum

Conflicting Narratives On Cooperation

Oil, Migration, And Strategic Motivations

Human And Regional Consequences

Political Futures And Democratic Limits

A Region Entering A Prolonged Period Of Uncertainty

Source: Reuters

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