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LONDON - The number of UK businesses in "critical" financial distress surged 78% year-on-year to 55,530 companies in the third quarter of 2025, according to a report released Thursday by Begbies Traynor.
The latest Red Flag Alert report also showed a 12.6% increase in critically distressed businesses compared to the previous quarter, with 21 of 22 sectors experiencing deterioration in financial health.
Consumer-facing industries were hit hardest, with Leisure & Cultural Activities seeing a 96.7% rise in critical distress, followed by Hotels & Accommodation at 92.5% and General Retailers at 85.6%.
The number of businesses in "significant" financial distress also increased 14.8% year-on-year to 726,594 firms, with Utilities, Real Estate & Property Services, and Financial Services showing the highest growth rates.
"The steep increase in businesses in 'critical' financial distress shows the UK economy is in real trouble," said Julie Palmer, Partner at Begbies Traynor. "With over 55,000 companies now in serious financial distress, the upcoming Budget must deliver urgent support to avoid a wave of failures."
Support Services led all industries with 8,801 businesses in critical distress, followed by Real Estate & Property Services with 8,018 and Construction with 7,361.
The report highlighted persistent economic challenges including inflation, high taxation, and elevated borrowing costs as key factors contributing to the deteriorating business environment.
London had the highest concentration of distressed businesses with 19,323 companies in critical condition, followed by the South East with 8,104 and the Midlands with 6,406.
The findings come as businesses look to November's Budget for potential relief measures, according to the press release statement.
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