There has been a 25% increase in the number of businesses in critical financial distress in the third quarter of 2022, compared to Q3 2021, according to the latest Begbies Traynor Red Flag Report.

Bars and restaurants, as well as general retailers, are up 48% and 72% respectively, serving as major drivers of the increase. There are now 610,000 companies in significant financial distress, a number that has increased quarter-on-quarter across all 22 sectors covered by the research.

Amid rising economic pressures, the prospect of further increases in inflation and interest rates could force distressed businesses to enter insolvency, particularly those that benefited from government support during the pandemic, according to Begbies Traynor.

Leisure and cultural activities, and media, have contributed to the rise as well.

Julie Palmer, partner at Begbies Traynor, said: “We are now in an environment that we have not seen for many years, with a dangerous mix of rapidly rising inflation, escalating interest rates and crumbling consumer confidence.

“The economy, which had already been weakened by two years of pandemic disruption, now

faces the very real possibility of a recession at a time when businesses were in desperate

need of a sustained period of stability so they could get back on their feet.

“What we have instead is a situation where input costs are soaring and businesses that

borrowed to survive for years and are stuck with levels debt that they may be unable repay –

especially with interest rates expected to rise to circa 6% in 2023.

“The economic turmoil is also having a stark effect on consumer confidence, and I remain

particularly concerned about sectors most exposed to discretionary consumer spending,

namely Bars & Restaurants, Leisure, and General Retailers. These businesses were some of the worst affected by pandemic chaos and now their customers are reining in discretionary spending, something we can clearly see in this Red Flag data.”