As the dust settles on the Autumn Budget 2025, one message is clear: the UK economy is entering a slower, more fragile phase. The Office for Budget Responsibility (OBR) now forecasts GDP growth of 1.5% in 2025, but this will slow to 1.4% in 2026 and remain subdued through the rest of the decade. Inflation, while easing slightly, is still above the Bank of England’s 2% target, sitting at 3.6% in October 2025. Add to that a rising tax burden - projected to reach 37.7% of GDP by 2028–29, the highest since WWII - and it’s no surprise that businesses are feeling the squeeze.

But while most business owners are rightly focused on cash flow, costs, and staffing, there’s a quieter risk that deserves urgent attention: contractual disputes.

Why economic pressure increases legal risk

When growth slows and margins tighten, service relationships come under strain. What might once have been resolved with a phone call - a late payment, a missed delivery, a change in scope can quickly escalate into a formal dispute. And if your contracts aren’t built to handle that pressure, you could find yourself exposed to litigation at the worst possible time.

Three contract stress-tests for 2026

Here are three areas every business owner and director should review now:

1. Payment terms and cash flow triggers

In a high-inflation, low-growth environment, late payments become more common - and more damaging. Review your contracts to ensure:

• Payment terms are clear and realistic
• Late payment interest is enforceable and commercially appropriate
• There are early warning triggers for financial distress (e.g. missed milestones, credit rating changes)

2. Dispute resolution clauses

Litigation is expensive and slow. Well-drafted dispute resolution clauses can keep disagreements out of court. Consider:

• Escalation steps: internal discussions, mediation, arbitration
• Jurisdiction and governing law - especially for cross-border contracts
• Time limits for raising and resolving disputes

3. Termination and liability provisions

If a service partner fails to deliver - or a customer defaults - you need clarity on your rights. Check:

• Termination clauses: are they clear, fair, and enforceable?
• Liability caps: are they proportionate to the risk?
• Force majeure: does it reflect today’s economic and operational realities?

Prevention is cheaper than litigation

The best time to review your contracts is before a dispute arises.

In a climate of economic uncertainty, your contracts are your first line of defence. They should reflect not just your commercial goals, but the realities of a more volatile, compliance-heavy, and cash-constrained environment.

If you haven’t reviewed your key agreements since before the pandemic - or if you’ve grown rapidly without revisiting your terms - now is the moment to act.

Source: OBR Autumn 2025 Economic and Fiscal Outlook

Legal disclaimer

The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions.

Before acting on any of the information contained herein, expert advice should always be sought.

© Melissa Worth, November 2025