October 2026M.INDEXOur Monthly Index on the state of UK CreditDemand returns for UK SMEs as energy costs and rates loomRecent economic indicators suggest the UK SME environment regained momentum in October, with September’s slowdown proving short-lived. The flash Composite PMI rose to 53.1 from 52.0, the fastest pace of growth since February, with both services and manufacturing strengthening. New orders grew at their fastest rate in 25 months and firms added staff for the first time since hiring was hit by the 2024 Autumn Budget. This matters because it suggests growth is increasingly being driven by customer demand rather than one-off factors. Construction remains the exception. Its PMI rose to 46.1 in September, the slowest decline in eight months, but the sector has now contracted for 21 consecutive months. New construction orders also fell at their fastest pace since June as clients delayed major projects, and the share of firms expecting activity to rise over the next year dropped from 38% to 31%, a sign that the pipeline is weakening even as current activity looks less bad.Business orders surge; hiring resumes Business activity hit its fastest pace since February; orders hit a 25-month high, and firms began hiring again after two years.Soaring energy costs squeeze margins Energy costs nearly tripled as a concern since August, rivaling demand and shifting pressure from revenue to margins for firms.Inflation climbs, raising interest rate risks Inflation climbed to 3.5% and is forecast to peak at 4.4% in January, raising the prospect of higher interest rates as demand recovers.Credit improves; defaults and debt increase Credit quality improves, but defaults hit a series high and revolving debt rose almost 10% this year, leaving it most exposed to rate rises.The bigger shift this month is on costs. Energy prices are now the main concern for 14.8% of businesses, almost three times the 5% recorded in August and virtually level with falling demand at 15.1%. Taken together, energy and wider inflation are now the main concern for 22.3% of firms, double the 10.9% seen in August, while concern about falling demand has eased from 17.9%. The failure of the June Memorandum of Understanding to reopen the Strait of Hormuz has kept oil prices high, with petrol at 175p and diesel at 199p per litre, up 33% and 41% respectively since before the conflict began in February. This matters because the question facing many businesses is moving from ‘will customers buy?’ to ‘can we make money when they do?’. For lenders, that shifts the focus from revenue risk to margin and cashflow risk, particularly in energy-intensive sectors such as transport, storage, manufacturing and construction.This cost pressure is now clearly visible in the inflation data. CPI rose to 3.5% in September from 3.1% in August, its highest rate since October 2025, with motor fuels pushing transport inflation up to 6.6%. Food inflation remains low at 1.3%, but is expected to pick up due to disruption to fertiliser shipping and the impact of abnormal weather on crop yields. Overall inflation is forecast to peak at 4.4% in January as a projected double-digit rise in the Ofgem energy price cap feeds through supply chains. With inflation well above the 2% target, the Bank of England is set to seriously consider raising rates at its meeting on 5 November, while some firms are already holding back spending ahead of the Budget. For SMEs, a rate rise would mean higher operating costs and higher borrowing costs arriving at the same time, just as demand is starting to recover.Experian credit data shows why this combination matters. Headline credit quality continues to improve, with the average Commercial Delphi score 6.8% above year-end and at its highest level since the move to Delphi Gen 6 in 2022. The median score has risen even faster, up 20.7%, suggesting the improvement is broad-based rather than driven by a small group of strong businesses, and delinquency rates remain 1.5% below year-end. However, default rates are now 13.3% above year-end and at their highest point in the series, while average revolving credit debt has grown 9.7% this year and is now more than three times its 2019 level. Overdraft utilisation and the proportion of overdrawn current accounts have also risen, both now more than 3% above year-end.Taken together, this points to a market where most businesses look healthier, but those under pressure are under more of it. Falling delinquency alongside rising defaults suggests stress is concentrated rather than widespread, with earlier arrears now crystallising into losses. Revolving credit utilisation has actually fallen 4.0% while balances have grown, suggesting limits are rising faster than usage. That means there is headroom in the system, but also more drawable exposure if conditions worsen. Crucially, revolving credit and overdrafts are among the most rate-sensitive forms of SME borrowing, and they are where balances and usage are growing. A rate rise in November, followed by higher energy bills into the new year, would land hardest on businesses already leaning on flexible credit.Overall, the SME lending market is moving into a more demanding phase. Demand is finally returning, which should support borrowing appetite and create lending opportunity, particularly for working capital as firms take on new orders and staff. But growth is now running into rising costs and the prospect of higher interest rates, and the credit data shows pressure already building at the sharper end of the market. For lenders, the key question is shifting from whether businesses can find customers to whether they can afford to serve them. Stress-testing affordability against higher rates and energy costs, and keeping a close eye on revolving credit and overdraft behaviour, will be essential to separating growth-led borrowing from businesses using credit to cover a widening margin gap.Gareth Rees Head of Commercial Credit & Risk, Experian businessuk@experian.comKey UK Economic & Commercial Credit MetricsPMIs: business growth accelerates, while construction remains under pressureUK Purchasing Managers Indices (PMIs)The October flash UK PMI showed private-sector activity expanding at its fastest pace since February. The Composite Output Index rose to 53.1 from 52.0 in September, with growth strengthening in both services and manufacturing. New orders increased at their fastest rate in 25 months, and firms added staff for the first time since hiring was hit by the 2024 Autumn Budget. However, input costs rose faster, with firms citing energy, fuel and freight costs. Some businesses also held back spending ahead of the Budget amid uncertainty over domestic policy.The construction PMI rose to 46.1 in September from 44.3 in August, signalling the slowest decline in activity for eight months, though the sector remained in contraction. Activity fell more slowly across housing, commercial construction and civil engineering, but new orders declined at their fastest pace since June as clients delayed decisions on major projects. Firms continued to report higher costs, although input-price inflation eased to a seven-month low. Confidence in the year-ahead outlook weakened, although 31% of firms expected activity to rise, compared with 21% expecting a fall. Source: S&P Global, CIPSONS BICS: Energy costs continue to surge as a key concern for UK businesses“Which of the following will be the main concern for your business for the month of…”According to the Office for National Statistics (ONS) Business Insights and Conditions Survey (BICS), falling demand was the most frequently cited concern among UK businesses for November 2026 reported by 15.1% of businesses, followed closely by energy costs at 14.8%. Taxation was the third most common concern at 9.3%, while inflation of goods and services followed at 7.5%.Energy price concerns have risen sharply over the last few months, with only 5% of businesses reporting it as their main concern back in August. This is reflective of a deteriorating geopolitical situation with the failure of the June Memorandum of Understanding to reopen the Strait of Hormuz leading to heightened global oil prices. Source: ONSQuarter on quarter Q1 2026 Business Investment +1.8% Gross Fixed Capital Formation +0.9%Year on year Q1 2026 Business Investment +5.2% Gross Fixed Capital Formation +3.1%UK inflation: CPI rises to 3.5% in September, driven by motor fuel inflationAnnual inflation rates for selected categories of goodsThe latest data from the ONS on inflation showed that the 12-month CPI rate rose from 3.1% in the 12 months to August to 3.5% in the 12 months to September. Annual inflation rose for both goods (from 2.7% to 3.2%) and services (from 3.4% to 3.7%). The main contributor was the transport category, where prices rose by 6.6% in the year to September driven by a rise in the price of motor fuels. Petrol and diesel prices have reached 175p and 199p per litre, respectively, as of the 19th of October according to the Department of Energy Security and Net Zero, well above the 132p for petrol and 141p for diesel recorded before the outbreak of conflict in February.Annual food price inflation remained low at 1.3%, equal to rates seen in July and August and well below the 4.5% rate seen in September 2025. Despite its current slow rate, food price inflation is expected to pick up from here reflecting a disruption to fertiliser shipping and concerns that abnormal weather this year could affect crop yields. Inflation is expected to rise to a peak of 4.4% in January underpinned by a projected double digit percentage rise in the Ofgem energy price cap, and the pass through of higher energy prices through supply chains. With wage growth slowing but inflation well above the 2% target, the Bank of England is set to seriously consider the benefits and trade-offs to raising rates at its upcoming MPC meeting on November 5th.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; September 2026: 41. Variance to 2025: plus 6.8%.Median Commercial Delphi Score 2019: 41; 2020: 37; 2021: 37; 2022: 28; 2023: 27; 2024: 26; 2025: 29; September 2026: 35. Variance to 2025: plus 20.7%.Average credit card and revolving credit utilisation rate 2019: 100; 2020: 84; 2021: 101; 2022: 108; 2023: 111; 2024: 107; 2025: 106; September 2026: 102. Variance to 2025: minus 4%.Average overdraft utilisation rate 2019: 100; 2020: 62; 2021: 46; 2022: 81; 2023: 81; 2024: 80; 2025: 74; September 2026: 76. Variance to 2025: plus 3.1%.Proportion of current accounts overdrawn 2019: 100; 2020: 63; 2021: 73; 2022: 78; 2023: 78; 2024: 73; 2025: 55; September 2026: 57. Variance to 2025: plus 3.5%.Average asset finance debt 2019: 100; 2020: 100; 2021: 104; 2022: 112; 2023: 148; 2024: 157; 2025: 158; September 2026: 159. Variance to 2025: plus 0.5%.Average credit card and revolving credit debt 2019: 100; 2020: 94; 2021: 157; 2022: 182; 2023: 209; 2024: 237; 2025: 291; September 2026: 319. Variance to 2025: plus 9.7%.Average loan debt 2019: 100; 2020: 110; 2021: 129; 2022: 128; 2023: 134; 2024: 125; 2025: 117; September 2026: 121. Variance to 2025: plus 3.5%.Average mortgage debt 2019: 100; 2020: 99; 2021: 108; 2022: 109; 2023: 97; 2024: 98; 2025: 102; September 2026: 104. Variance to 2025: plus 2.2%.Average non-mortgage debt 2019: 100; 2020: 103; 2021: 111; 2022: 108; 2023: 123; 2024: 121; 2025: 121; September 2026: 123. Variance to 2025: plus 1.3%.Status 2-plus delinquency rate 2019: 100; 2020: 157; 2021: 117; 2022: 117; 2023: 135; 2024: 145; 2025: 139; September 2026: 137. Variance to 2025: minus 1.5%.Default rate 2019: 100; 2020: 76; 2021: 59; 2022: 71; 2023: 86; 2024: 103; 2025: 112; September 2026: 127. Variance to 2025: plus 13.3%.The view from Experian Headline credit quality continues to strengthen, with average Commercial Delphi scores up 6.8% on year-end and delinquency rates slightly lower, supporting continued lending opportunities. However, defaults have reached a series high and revolving credit debt is up almost 10% this year, while overdraft utilisation and overdrawn current accounts remain above year-end. Stress looks concentrated rather than widespread, but it is building. The wider backdrop has shifted. Demand is recovering, with business activity growing at its fastest pace since February, but energy and inflation combined now worry more firms than falling demand, and a rate rise is on the table for November. For lenders, the risk is moving from revenue to margins. Revolving credit and overdrafts are among the most exposed to higher rates, making affordability stress-testing more important than headline scores alone.For more in-depth insights, read our latest credit trends report Want to know more? Contact us today to arrange a meeting ;