A record 49,309 UK businesses are now in ‘critical’ financial distress, according to the latest Red Flag Alert data. This is a 21.4% rise on the same period last year, with all 22 sectors monitored showing year-on-year increases in the most severe category of distress.
Consumer-facing industries are under the most pressure. Bars and restaurants have seen critical distress surge by 41.7%, while travel and tourism are up 39.0%, and general retail has risen by 17.8%.
The overall picture has worsened since Q1 2025, with critical distress accelerating across key sectors. Support services saw a 31.3% quarterly increase, while construction rose by 15.8%. These figures suggest a notable deterioration in the economy’s health during Q2.
Significant distress is also on the rise, affecting 666,876 businesses – an increase of 10.8% compared to Q2 2024 and 15.2% more than Q1 2025.
While the broader trend is worrying, some sectors reported improvements. Six of the 22 sectors surveyed showed year-on-year declines in ‘significant’ distress, including printing and packaging (down 23.5%), manufacturing (down 11.6%), and industrial transportation and logistics (down 10.1%).
Despite a brief improvement earlier in the year, these latest figures confirm a sharp downturn in trading conditions. Many businesses, particularly in hospitality and retail, are now operating on a knife-edge, with insolvency risk rising fast.
The data paints a stark picture of the mounting pressure on UK companies across a wide range of industries.
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