Critical financial distress among UK businesses rose sharply in the second quarter of 2025, with nearly 50,000 companies now struggling to stay afloat, according to the latest Red Flag Alert report from Begbies Traynor.
The data shows that 49,309 businesses were in “critical” financial distress as of 30 June, a 21.4% increase compared with the same period last year and up 8.6% from the previous quarter.
The rise was recorded across all 22 sectors tracked by the report, underscoring the impact of volatile consumer spending, global economic turbulence, and higher taxes.
Consumer-facing industries were among the hardest hit. Bars and restaurants saw critical distress increase by 41.7% year-on-year, while travel and tourism rose by 39% and general retailers by 17.8%.
Support services and construction, considered bellwethers for the wider economy, also recorded significant rises, at 31.3% and 15.8% respectively.
The report highlighted that “significant” financial distress – a less severe measure but a key indicator of future strain – also rose sharply, increasing 10.8% year-on-year to 666,876 businesses. Compared with the previous quarter, significant distress climbed 15.2%.
Only six sectors recorded year-on-year improvements, including printing and packaging (down 23.5%), manufacturing (down 11.6%), and industrial transportation and logistics (down 10.1%).
Julie Palmer, a partner at Begbies Traynor, said the figures reflect the pressures facing companies across the UK.
“Financial distress has intensified over the past twelve months in every corner of the economy. This means businesses across the UK are facing significant headwinds and many will have to review where they can tighten their budgets or restructure to give themselves more stability in the immediate future,” she said.
Palmer noted that optimism seen among business leaders a year ago has faded.
“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.”
She added that while larger operators may be able to offset rising costs through efficiency gains, smaller businesses without the same resources may not withstand another 12 months of current conditions.
Ric Traynor, executive chairman of Begbies Traynor, warned that rising costs and policy decisions are adding to the strain.
“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,” he said.
Traynor cited increases in employer’s national insurance contributions and the national minimum wage as factors weighing on small and medium-sized businesses.
“With limited financial headroom to absorb rising costs, many businesses are now reaching a tipping point,” he said.
He added that with GDP falling in May, inflation remaining stubborn, and unemployment at a four-year high, the economic outlook remains challenging.
“Taken together with geopolitical uncertainty, tariffs, dampening business confidence and continued financial pressures, UK businesses have many difficult decisions to make in the coming months,” Traynor said.