Software Development Formations Surged 86% as UK Entrepreneurship Enters Its AI Era

March delivered 74,101 formations, the highest single month of Q1 and a 22.6% rebound from February. Founders who deferred registration in February re-entered the market in March. The recovery was broad, with four sectors recording year-on-year growth in March: construction grew 7.2% year-on-year after falling 9.6% in February. Technology grew 24.0%. Financial services grew 13.6%. Transport grew 6.3%.

The February collapse did not persist. Founders absorbed the higher fee and re-entered within the same quarter.

Three Sectors Grew, Fourteen Declined, as the UK Economy Split Along Digital-Physical Lines

Three sectors grew in Q1 2026: technology (+20.4%), financial services (+17.2%), and professional and scientific services (+4.8%). Two sectors were flat. Fourteen declined. The three growing sectors share a common profile: lower fixed costs, scalability, and demand that is not tied to a physical location. The fourteen declining sectors share the opposite: physical premises, local footfall, or high operational overhead.

The retail and wholesale trade sector figure of −12.6% covers all retail formats.

SIC 47910, non-store retail covering online and mail-order commerce, is the single largest SIC code in the entire Q1 2026 dataset with 13,292 formations. Non-store retail declined only 4.1% year-on-year. Physical store retail SIC codes fell far more steeply: non-specialised store retail (SIC 47190) declined 27.5% and clothing retail (SIC 47710) declined 21.9%. Founders are not abandoning retail broadly. Online retail formation remains the single largest registration category in the UK.

Financial services formations rose 17.2% in Q1 2026, from 7,949 to 9,310. Growth was recorded across all three months: 28.0% in January, 11.8% in February, and 13.6% in March.

SIC 64209, activities of holding companies, drove that growth, rising 34.4% from 4,681 to 6,290 formations. A holding company registered in Q1 2026 may not become an operating business until Q3 or Q4. Its registration is a declaration of intent rather than a record of current activity. Founders and investors are establishing corporate structures in advance of anticipated deals and investments.

Management consultancy (SIC 70229) grew 14.2% from 7,880 to 9,001, making it the second-largest individual SIC code in the dataset. Limited partnerships fell 27.5% from 273 to 198 in the same period. Investment structure formation is moving from limited partnerships toward holding company vehicles.

Professional and scientific services registered 21,677 formations in Q1 2026, up 4.8% from 20,691 in Q1 2025. The sector grew 8.0% in January, 1.1% in February, and 4.9% in March.

LLP registrations across the UK fell 15.7% in the same period, from 1,164 to 981. LLPs are concentrated in professional services, and the decline coincides with a 4.8% rise in limited company formations within the sector. The pattern suggests founders in professional services are favouring private limited company structures over the traditional LLP model. The sector is growing in volume while the partnership structure it historically relied on is contracting.

Foreign companies registering a UK presence fell from 212 to 108, a 49.1% decline. UK establishment registrations fell from 213 to 108, a 49.3% decline.

Overseas companies and UK establishments together represent foreign businesses choosing to establish a formal UK footprint. The combined collapse of these two foreign registration categories, approximately 49%, is the sharpest percentage decline of any company type in the dataset.

The Companies House fee increase and ECCTA 2023 identity verification requirements may have deterred foreign entities from registering in the UK. Both changes created proportionally more cost and administrative complexity for foreign founders than for domestic ones. The scale of the decline warrants attention as a leading indicator of reduced foreign direct investment appetite for formal UK registration.

Private unlimited companies do not file accounts publicly. The 48.2% rise from 56 to 83 formations is small in absolute terms but notable in direction. Private unlimited companies offer maximum confidentiality under UK company law. Growth in an environment of increased ECCTA 2023 regulatory scrutiny and mandatory director identity verification points to a subset of founders actively seeking structures that limit public disclosure while retaining the benefits of a formal corporate structure.

Manchester's growth illustrates how a single urban centre can mask a regional decline. Manchester registered 5,677 companies in Q1 2026, up 12.4% from 5,051 in Q1 2025. The North West overall fell 0.4% in the same period. Manchester's growth is masking declines elsewhere across the region.

Companies House classifies registered companies by country of incorporation address. In Q1 2026, 79,550 companies are classified as "United Kingdom" rather than England, Scotland, Wales, or Northern Ireland, up 13.6% from 70,010 in Q1 2025. England fell 7.8% over the same period.

Companies classified as "United Kingdom" are likely online registrations where no specific nation was assigned to the address at the point of registration. Growth of 13.6% in that classification against a backdrop of overall market decline is unexplained by domestic formation trends. The Barometer will monitor this in future quarters.

Formation Volume Does Not Predict Business Durability; the 2024 Record Cohort Had 49% Dissolution Within Two Years

The Companies House register snapshot of 26 May 2026 shows that fewer than four in ten companies formed in Q1 2021 remain active five years later.

Five-year survival rates from the Q1 2021 cohort reveal which sectors produce durable businesses and which produce high early-stage attrition.