The number of companies reporting critical financial distress in the third quarter of the year increased by 23% compared to the same period in 2010, as public sector cuts continued to impact parts of England and Wales, according to the latest Red Flag report by Begbies Traynor. The latest findings also showed that a north-south divide in levels of business distress was widening, with companies in the north east, north west, Yorkshire, the Midlands, the east of England and Wales facing mounting financial pressure, while London and the south east are relatively unscathed. The north east experienced a 19% increase in business distress, while the north west saw a 12% rise. The south west, Wales, the midlands and Yokshire all experienced a 10% increase in business distress. However, London and the south east saw a 6% and 3% drop respectively. Ric Traynor, chairman of Begbies, said: “As the threat of public sector job cuts became a reality in the past few months, a north-south divide has begun to emerge with the south-east and London areas showing much greater economic resilience than the rest of England and Wales. “Many of the regions worst affected – such as the north-east and north of England – are heavily dependent on the public sector, so it is telling that these areas are witnessing increased levels of financial distress.”