The number of UK businesses facing ‘critical’ financial distress has soared as they demand clarity from Rachel Reeves’ November Budget.
Businesses experiencing ‘critical’ financial distress jumped 78 per cent year-on-year, reaching 55,530 in the third quarter of 2025, compared with 31,201 during the same period last year.
Begbies Traynor’s latest Red Flag Alert report highlighted that economic uncertainty and inflation have placed significant strain on the UK economy.
Out of the 22 sectors analysed in the report, 21 saw an increase in ‘critical’ financial distress exceeding 40 per cent compared with the corresponding period last year.
Consumer-facing sectors are experiencing the most acute pressure, particularly leisure and cultural activities, hotels and accommodation, and general retailers, as reported by City AM.
London accounts for the largest number of critically distressed businesses (19,323) despite its concentration of financial services firms.
The report also revealed that those experiencing ‘significant’ financial distress rose nearly 15 per cent year-on-year to 726,594 companies (Q3 2024: 632,756). However, it was utilities, real estate and property services, and financial services that recorded ‘significant’ distress.
Consequently, Begbies emphasised that numerous companies are “scaling back just to survive” instead of investing for growth, indicating a wider economic downturn. Begbies Traynor has forecast “rising insolvencies and a continued loss of economic confidence well into 2026” should the November Budget fail to provide substantial relief.
The restructuring firm cautioned that Labour’s November Budget represents a “critical phase” for companies.
The listed firm has also called for “decisively pro-business” measures to combat elevated inflation, taxation, and borrowing costs, and to avert a sustained erosion of economic confidence extending into 2026.
Yet this emerges as Reeves confronts a £20bn fiscal shortfall. She is understood to be considering levies on banking institutions, earnings from limited liability partnerships (LLPs), and the gambling sector.
Julie Palmer, partner at Begbies Traynor, said: “Unfortunately for UK businesses, inflation is going nowhere, putting further pressure on companies at a time when wage, tax, and financing costs are already high.
“Many firms have no room to manoeuvre, and instead of investing for growth, are scaling back just to survive – the opposite of what the economy needs, if it’s going to recover and grow,” she continued.
“The government must get the Budget in November right, but the Chancellor faces a delicate balancing act between delivering ‘business friendly’ measures while balancing the books.
“There has been a lot of temperature testing in the run-up to November, but it is critical that the final measures are decisively pro-business.”
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