September 2026M.INDEXOur Monthly Index on the state of UK CreditUK SMEs enter a firmer but still cautious phaseRecent economic indicators suggest the UK SME environment remains resilient, although growth momentum has softened. The latest PMI readings show business activity continuing to expand, but at a slower pace, with both services and manufacturing losing some momentum. Construction remains a clear weak spot, with activity still in contraction and higher fuel, transport and raw material costs continuing to weigh on the sector. For lenders, this suggests that opportunities remain, but growth is becoming more selective across sectors.The wider business backdrop remains uneven. Falling demand is still the most frequently cited concern among UK firms, suggesting that many businesses remain cautious about future revenues. At the same time, energy costs have re-emerged as a more material pressure, particularly in transport and storage, where fuel costs have risen sharply. This matters because cost pressure is returning before demand has fully recovered, limiting the scope for stronger hiring, investment and expansion and increasing the importance of affordability and cashflow resilience when assessing borrowers.The labour market also points to a cautious operating environment. Vacancies remain below pre-pandemic levels and private sector pay growth has slowed, suggesting firms are still managing headcount and wage costs carefully. While this may ease some margin pressure over time, it also reinforces the picture of businesses prioritising cost control rather than broad-based growth. For lenders, this may mean borrowing demand remains focused on businesses with clearer investment cases rather than a widespread return to expansion.Business investment data remains more encouraging, with Q2 investment returning to annual growth. However, given the softer PMI momentum, weak construction activity and renewed energy cost pressure, the recovery still looks gradual rather than secure. Firms may be more willing to invest than earlier in the year, but confidence remains vulnerable to weaker demand and higher operating costs. This creates lending opportunity, but reinforces the need to distinguish sustainable investment-led borrowing from more defensive financing needs.Experian credit data reflects this mixed environment. Commercial Delphi scores have improved further and delinquency rates remain slightly below year-end levels, indicating that headline credit quality is still resilient. However, default rates have risen materially, while revolving credit debt and overdraft utilisation remain above year-end. This suggests some businesses are still relying on flexible borrowing to manage working capital pressure, even as headline risk metrics improve. These behavioural indicators remain important early signals of where stress may be building beneath the surface.Overall, the SME lending market remains in a cautiously improving but uneven phase. Growth has not stalled, and credit quality remains strong, but rising defaults, higher short-term debt and renewed cost pressures mean risk may still be building beneath the surface. For lenders, the key remains distinguishing businesses borrowing to support genuine investment from those using credit to bridge weaker demand and cashflow pressure.Gareth Rees Head of Commercial Credit & Risk, Experian businessuk@experian.comKey UK Economic & Commercial Credit MetricsPMIs: business growth moderates while construction remains under pressureUK Purchasing Managers Indices (PMIs)The latest flash UK Purchasing Managers’ Index (PMI) readings, (where a reading above 50 signals expansion and below 50 signals contraction), showed that business activity continued to expand in September, albeit at a slower rate. The Composite PMI fell to 51.7 from 52.5 in August, driven by a loss of momentum in both the manufacturing and services sectors. Geopolitical uncertainty and ‘subdued domestic economic conditions’ were among the constraints to growth; conversely, some firms cited greater demand for technology services, while investment in AI and defence spending were cited as factors supporting manufacturing.The construction PMI fell to 44.3 in August from 44.7 in July, the twentieth successive month of contraction. Purchasing activity dropped sharply driven by heightened fuel, transportation and raw material costs, largely owing to lingering geopolitical tension. Despite these challenges, construction companies remained upbeat on the year ahead, with 38% expecting an expansion in activity against 20% expecting a downturn.Source: S&P Global, CIPSONS BICS: Energy costs re-emerge as a key concern for UK businessesMain concern for UK businesses in September 2026According 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 October 2026 reported by 15% of firms, down from 16% a year earlier. Taxation was the second most cited concern (11.2%), down from 12.7% a year earlier amid the heightened uncertainty surrounding the Autumn 2025 Budget. Energy costs have re-emerged as one of the main concerns for businesses at 9.5% of firms, up from 5.6% a year earlier. Competition with other businesses was also a concern at 7.6%, down slightly from 7.9% a year earlier.Energy price concerns were concentrated in energy-intensive sectors. In particular, 30% of firms in the transportation and storage sector cited Energy Prices as their main concern for October 2026, up from only 2.3% for October 2025. Oil prices rose through August and September, after the June 2026 MoU between Iran and the USA failed to end hostilities and reopen the Strait of Hormuz. This has fed through to fuel prices at the pump, with petrol and diesel both reaching new peaks of 172p and 195p per litre, respectively, as of the 21st of September according to the Department of Energy Security and Net Zero.Source: ONSUK labour market: hiring remains weak, while wage data points to state pension increaseUK average pay growth (%)Early estimates suggested there were 702,000 vacancies in the UK in the three months to August 2026, 86,000 (10.9%) below their pre-pandemic (Jan-Mar 2020) level. Meanwhile, headline employment, unemployment and economic inactivity rates have remained stable over recent months. Annual nominal total pay growth slowed to 3.9% in the three months to July: this figure is used as part of the ‘pension triple lock’; with CPI inflation unlikely to exceed this rate in September, the state pension is set to grow by 3.9% in FY2027-28.Annual total pay in the public sector grew by 6.6% in the three months to July, more than double the equivalent for the private sector of 3.2%, although the ONS cautions that the strength in public sector pay growth is driven in part by the timing of pay rises for NHS staff being earlier in 2026 than in 2025. Within the private sector, the strongest growth was seen among wholesaling, retail, restaurants and hotels at 3.1%, while construction was the weakest at 0.3%.Quarter 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% Source: ONSKey UK Commercial Credit Metrics(Asset Finance, Credit Cards/Revolving Credit, Loans, and Mortgages)Measure 2019 (Year end) 2020 (Year end) 2021 (Year end) 2022 (Year end) 2023 (Year end) 2024 (Year end) 2025 (Year end) 2026 (Aug 2026) Variance to 2025 (%) Average Commercial Delphi Score 45 43 43 38 37 37 38 40 5.3% Median Commercial Delphi Score 41 37 37 28 27 26 29 33 13.8% Average credit card/revolving credit utilisation rate 100 84 101 108 111 107 106 106 -0.1% Average overdraft utilisation rate 100 62 46 81 81 80 74 76 3.4% Proportion of current accounts overdrawn 100 63 73 78 78 73 55 58 4.9% Average asset finance debt 100 100 104 112 148 157 158 159 0.3% Average credit card/revolving credit debt 100 94 157 182 209 237 291 322 10.7% Average loan debt 100 110 129 128 134 125 117 120 2.8% Average mortgage debt 100 99 108 109 97 98 102 103 1.9% Average non-mortgage debt 100 103 111 108 123 121 121 122 0.8% Status 2+ delinquency rate 100 157 117 117 135 145 139 137 -1.2% Default rate 100 76 59 71 86 103 112 122 8.7%The view from ExperianHeadline credit performance remains resilient, with Commercial Delphi scores improving further and delinquency rates slightly below year-end levels, supporting continued lending opportunitiesDefaults have increased and liquidity indicators remain important to monitor. Revolving credit debt, overdraft utilisation and overdrawn current accounts remain above year-end, suggesting pressure is becoming more concentrated among some businesses.The wider economic backdrop remains mixed. Business activity is still expanding, but momentum has softened, construction remains weak and energy costs are re-emerging, increasing the importance of sector and affordability assessment.For lenders, borrower behaviour remains key. Rising defaults and short-term debt may provide earlier warning signs of stress than headline credit quality alone. ;