Growth was mentioned 49 times in the Labour Party manifesto. And among the party’s five key missions, “kickstart economic growth” was number one. When Sir Keir Starmer and Rachel Reeves presented their pitch to voters ahead of the General Election, they were clear about their focus.
I am not sure the last 18 months or so have worked out entirely the way they planned. There has not been good news in the GDP figures since June. Unemployment is rising. Experts have for some time been describing the prolonged downturn in vacancies as a “hiring recession”. “The labour market is clearly softening with payrolls showing a rise in jobless numbers. While wage growth remains resilient, unemployment is an area to watch as we head into 2026,” says Scott Gardner of J.P. Morgan Personal Investing.
Retailers suffered a disappointing December as rising bills and food costs kept shoppers at home, with total UK footfall for the month down by 2.9 per cent year on year. Recession is usually defined as two successive quarters of negative growth and we’re not there yet. But in the real world, yes, we’re in recession.
Alongside our domestic woes, there’s also the looming threat of global recession. While Donald Trump is adamant the US economy is doing well, cracks are clearly spreading across it. But underneath the AI sheen, much of America’s real economy is on the rocks. Lay-offs have soared, consumer confidence has plummeted and poorer households are becoming increasingly overburdened with debt.
More than a million workers were laid off in the first 10 months of last year, alone, up 65% on the same period in 2024, according to a report by Challenger, Gray and Christmas, a firm that helps laid off workers find jobs. In October alone, job losses totalled 153,000, a number that was up by 175% year-on-year and was the highest figure for any October since 2003.
The International Monetary Fund now says that although “the tariff shock” is a key reason why it now expects the rate of global economic growth to slow to 3.1% in 2026. A year ago, it predicted a 3.3% expansion this year.
Peculiarly, these economic woes –hiring freezes, global recession, growing domestic unemployment, and the inevitable rise in arrears and possession that will follow, may well present good news for servicers.
This will manifest itself in two ways. The first is that many lenders are on pricing models based on the number of contacts their servicer makes with their customers. More delinquencies means more cash for their servicer.
But there’s a second, less obvious driver. An increase in unemployment and associated arrears might boost the securitisation market as lenders look to offload underperforming portfolios; the buyers will need servicers to run them.
That’s all very well and good for the servicer community. Given this is what is coming down the tracks – and assuming they are already prioritising early intervention to minimise arrears escalation and possessions – what should lenders do?
They should start by modelling scenarios (including growing unemployment and moderate arrears growth) to assess whether in-house servicing teams have the capacity to deal with potential volume increases? Maybe they won’t need to sell any portfolios? Maybe everything is sunny in their loans rose garden…? Maybe they can afford the extra cash their servicers will require? Now would be a good time to check.
Second, they should look to expand their digital tools and analytics for early warning signals (e.g., payment pattern changes). At least then they will know when they need to start looking at offloading those trickier portfolios.
Mel Spencer is growth lead at Target Group
