May 2026M.INDEXOur Monthly Index on the state of UK CreditThe view from ExperianRecent economic indicators suggest the UK SME environment became more fragile during May, with weakening confidence and rising cost pressures beginning to weigh more visibly on business activity. Flash PMI data showed the Composite PMI falling into contraction territory for the first time in over a year, declining from 52.0 in April to 48.5 in May. Much of the deterioration was driven by the services sector, while manufacturing remained comparatively resilient. However, survey evidence suggests this resilience may partly reflect businesses bringing forward purchases in anticipation of further price increases and supply disruption, rather than signalling sustained underlying demand. Taken together, this points to a softer underlying demand environment than headline activity alone might suggest.Underlying cost pressures remain a key concern for businesses. Ongoing disruption linked to conflict in the Middle East continues to push up the cost of oil, gas, and other industrial inputs, feeding through into transport and operational expenses. Survey data indicates that geopolitical concerns around supply chains remain significantly elevated compared with late 2025 levels, particularly among energy-intensive and consumer-facing sectors. Alongside these pressures, businesses continue to face higher labour and regulatory costs following April’s changes to wage and employment rules. Together, these factors are contributing to weaker confidence and increasing caution around hiring, investment and forward planning, reinforcing a more defensive operating environment.This softer backdrop is increasingly visible in business investment trends. While provisional ONS data showed modest quarterly growth in investment at the start of 2026, the annual growth rate has now turned negative following a stronger period a year earlier. Higher borrowing costs, weaker cash flow expectations, and ongoing uncertainty are expected to weigh further on investment through the remainder of the year. Consistent with previous months, this suggests businesses are prioritising liquidity preservation and operational resilience over expansionary spending, with investment increasingly delayed rather than cancelled outright.Experian credit data reflects this shift in behaviour. Headline credit performance metrics remain broadly stable, with delinquency rates improving slightly in the latest month and Delphi scores holding resilient. This indicates that financial stress has not yet fully translated into widespread credit deterioration. However, default rates have edged higher, and more importantly, liquidity indicators are showing clearer signs of pressure. Overdraft utilisation has increased, the proportion of current accounts overdrawn remains elevated, and revolving credit balances continue to rise. This suggests that many SMEs are relying more heavily on short-term and flexible borrowing facilities to manage working capital pressures, rather than taking on longer-term debt to fund growth.This divergence between stable headline credit performance and rising reliance on short-term liquidity is increasingly important. It suggests the market may be entering a phase where risk is building beneath the surface before it becomes visible in arrears or default metrics. As cost pressures persist and demand softens, these utilisation and liquidity trends are likely to act as early-warning indicators of future credit deterioration.Overall, the UK SME lending market is moving into a more cautious and uneven phase. While activity remains relatively resilient in some sectors, rising costs, weakening confidence and geopolitical uncertainty are beginning to weigh more materially on business conditions. For lenders, the key implication is the need to look beyond aggregate credit quality and monitor sector-level performance, utilisation trends and borrower behaviour more closely. Demand is likely to remain concentrated in short-term, lower-value and flexible facilities aimed at supporting liquidity, while appetite for longer-term, expansion-led borrowing is expected to remain subdued. Understanding how these dynamics evolve will be critical to assessing portfolio resilience and future lending demand.Gareth ReesHead of Commercial Credit & Risk, Experianbusinessuk@experian.comKey UK Economic & Commercial Credit MetricsBusiness Investment: Investment growth falters as costs and uncertainty mountUK business investment and gross fixed capital formationUK business investment (BI) rose modestly at the start of the year, with provisional Office for National Statistics (ONS) data showing quarterly growth of 0.7% in Q1 2026. However, BI was 1.8% lower than a year earlier, largely reflecting the strong 4.3% quarterly increase recorded in Q1 2025. In contrast, broader Gross Fixed Capital Formation (GFCF), which includes both business and public sector investment, declined by 0.6% on the quarter, but was 0.5% higher on a year earlier basis.Cost pressures are set to weigh on business investment from Q2 onwards. Firms are facing higher costs linked to new legal and regulatory requirements introduced in April, alongside ongoing supply chain disruption related to conflict in the Middle East. Political uncertainty following the May local election results has also added to these pressures by pushing up borrowing costs, which may deter firms from committing to capital spending until the outlook becomes clearer. These factors are likely to feed through into further challenges in the coming months, including weaker cash flow. As a result, business investment is expected to soften in 2026, with some firms delaying or scaling back planned spending.Source: ONS PMIs: Rising costs and uncertainty push PMI towards contractionUK Purchasing Managers Indices (PMIs)The latest flash UK Purchasing Managers’ Index (PMI) readings point to a potential contraction in output for April, as elevated input costs and uncertainty weigh on activity. The Composite PMI fell to 48.5 in May from 52.0 in April, marking the first contraction (a reading below 50.0) after twelve consecutive months of expansion. The decline was driven by services activity, where the index fell to 47.9 from 52.0, while manufacturing remained resilient at 53.7.Despite the continued strength in manufacturing, S&P Global (the PMI compiler) noted that input costs remained elevated across both sectors, reflecting supply chain disruption and geopolitical uncertainty. Around 66% of manufacturers and 51% of service providers reported rising cost burdens in May. Manufacturers also cited evidence of ‘customer front‑loading’ to explain the recent pickup in demand, suggesting that firms are bringing forward purchases in anticipation of higher prices in the months ahead. This may support PMIs in the near term but risks a subsequent weakening as demand is brought forward.Source: S&P Global, CIPS ONS BICS: Conflict driven disruptions keep supply chain risks high% of businesses citing International Conflict as a cause for concernfor supply chains in the 12 months aheadAccording to the ONS Business Insights and Conditions Survey, 27% of businesses in May 2026 cited international conflict as a concern for supply chains over the coming 12 months. While this is down slightly from 30% in March, it remains well above the 9% recorded in December, indicating that geopolitical risks continue to weigh heavily on firms’ expectations for the year ahead.The closure of the Strait of Hormuz following the onset of the Iran conflict has pushed up prices for oil, wholesale gas and fertilisers and other key industrial inputs. As a result, concerns surrounding supply chain disruption are most acute in energy‑intensive and food‑related sectors. Consumer‑facing industries such as retail are also exposed, with higher transport costs expected to weigh on footfall. Reflecting these pressures, 7.5% of businesses cited energy prices as their primary concern for June, up from 3.4% in the pre-conflict February survey. This suggests that the Iran conflict has already, and will continue to, materially shift the cost pressures facing UK firms and the risks to their near‑term outlook.ONS BICS Key UK Commercial Credit Metrics(Asset Finance, Credit Cards/Revolving Credit, Loans, and Mortgages) Average Commercial Delphi Score: 2019: 45; 2020: 43; 2021: 43; 2022: 38; 2023: 37; 2024: 37; 2025: 38; 2026 (Apr): 38; Variance: 1.0%Median Commercial Delphi Score: 2019: 41; 2020: 37; 2021: 37; 2022: 28; 2023: 27; 2024: 26; 2025: 29; 2026 (Apr): 30; Variance: 3.4%Average credit card/revolving credit utilisation rate: 2019: 100; 2020: 84; 2021: 101; 2022: 108; 2023: 111; 2024: 107; 2025: 106; 2026 (Apr): 107; Variance: 0.2%Average overdraft utilisation rate: 2019: 100; 2020: 62; 2021: 46; 2022: 81; 2023: 81; 2024: 80; 2025: 74; 2026 (Apr): 76; Variance: 3.0%Proportion of current accounts overdrawn: 2019: 100; 2020: 63; 2021: 73; 2022: 78; 2023: 78; 2024: 73; 2025: 55; 2026 (Apr): 58; Variance: 5.4%Average asset finance debt: 2019: 100; 2020: 100; 2021: 104; 2022: 112; 2023: 148; 2024: 157; 2025: 158; 2026 (Apr): 158; Variance: 0.1%Average credit card/revolving credit debt: 2019: 100; 2020: 94; 2021: 157; 2022: 182; 2023: 209; 2024: 237; 2025: 291; 2026 (Apr): 308; Variance: 5.7%Average loan debt: 2019: 100; 2020: 110; 2021: 129; 2022: 128; 2023: 134; 2024: 125; 2025: 117; 2026 (Apr): 117; Variance: 0.5%Average mortgage debt: 2019: 100; 2020: 99; 2021: 108; 2022: 109; 2023: 97; 2024: 98; 2025: 102; 2026 (Apr): 103; Variance: 1.7%Average non-mortgage debt: 2019: 100; 2020: 103; 2021: 111; 2022: 108; 2023: 123; 2024: 121; 2025: 121; 2026 (Apr): 122; Variance: 0.9%Status 2+ delinquency rate: 2019: 100; 2020: 157; 2021: 117; 2022: 117; 2023: 135; 2024: 145; 2025: 139; 2026 (Apr): 138; Variance: -1.1%Default rate: 2019: 100; 2020: 76; 2021: 59; 2022: 71; 2023: 86; 2024: 103; 2025: 112; 2026 (Apr): 115; Variance: 3.0% The view from ExperianHeadline credit performance metrics remain relatively stable, though conditions across the Commercial market are becoming increasingly uneven.Risk profiles remain broadly resilient despite rising pressure on liquidity. Overdraft utilisation and revolving credit balances have both increased, while delinquency rates have improved slightly in the latest month.The wider economic backdrop has weakened business confidence, with rising geopolitical uncertainty, higher input costs, and softer demand weighing on growth expectations and investment appetite.Lending behaviour continues to reflect this environment, with borrowing activity remaining concentrated in short term, lower value, and flexible lending facilities focused on supporting liquidity and working capital rather than long term expansion. For more in-depth insights, read our latest credit trends reportFind out more or contact us today to arrange a meeting ;