Nearly 50,000 businesses were in ‘critical’ financial distress in the spring, an increase of more than one-fifth compared with the previous year.
The latest Red Flag Alert report from Begbies Traynor showed that 49,309 businesses were in critical financial distress in Q2 2025, an 8.6% increase on Q1 and a 21.4% increase on Q2 2024.
The corporate insolvency and restructuring firm said the rise was felt in every corner of the UK economy, with all 22 sectors experiencing an increase over the past year.
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The latest research, which has been running for two decades, showed that challenges such as April’s increases in employers’ national insurance contributions, the national minimum wage and global economic turbulence have led to more businesses facing severe financial problems.
Consumer-facing sectors have seen some of the largest increases, including bars and restaurants (+41.7%), travel and tourism (+39.0%) and general retail (+17.8%).
After some signs of improvement in Q1, Begbies Traynor said the research showed a noticeable decline in the health of the UK economy in Q2. Key bellwether sectors saw critical financial distress rise at pace over the year, including the support services (+31.3%) and construction (+15.8%).
Ric Traynor, executive chairman of Begbies Traynor, said: “The sharp rise in critical distress underscores just how tough the economic environment is for UK businesses, and it’s abundantly clear that tens of thousands of firms are struggling to stay afloat.
“Small and medium-sized businesses across the UK are being put under immense strain by the recent increases to employers’ NI, as well as the increase to the national minimum wage. With limited financial headroom to absorb rising costs, many businesses are now reaching a tipping point.
“The result of this is reflected in the latest figures from Red Flag Alert. Critical financial distress is rising across every sector and trading conditions remain very difficult. Alongside this, policy decisions continue to add pressure, so there is a very real risk that more of these critically distressed businesses will move towards formal insolvency over the next 12 months.”
‘Significant’ financial distress in Q2 rose by 10.8% year-on-year to 666,876 businesses, a 15.2% increase versus Q1.
However, six of the 22 sectors monitored experienced a year-on-year fall in ‘significant’ distress, including printing and packaging (23.5%), manufacturing (11.6%) and industrial transportation and logistics (10.1%).
Julie Palmer, partner, said: “This time last year, there was a degree of optimism amongst business leaders who were hoping to see a shift in fortunes in the second half of the year, but fast-forward 12 months and confidence is in short supply.
“Households are still grappling with their finances, and this is keeping consumer confidence volatile. The knock-on effect of this is clear to see in the consumer-facing sectors where margins are thin, growth is hard to come by, and the impact of higher employee costs is pushing many businesses to the brink of collapse.”
The latest statistics from the Insolvency Service recorded 6,335 company insolvencies in Q2 2025, down 3.1% on Q2 2024.
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