The number of UK businesses in “critical financial distress” has risen by more than a third, according to new research from Begbies Traynor Group (BTG). The corporate restructuring specialist said pressure from the conflict in the Middle East, alongside tax rises and weak consumer confidence, pushed more firms to the brink of collapse in the first quarter of 2026.
BTG’s latest quarterly red flag report found that 62,193 companies were in critical financial distress during the quarter, a 36.9% increase compared with the same period a year earlier. Meanwhile, the number of businesses facing “significant” financial distress rose by 9.6% year on year to 634,867.
The hospitality sector was particularly affected, with 69.3% of hotels and accommodation firms reporting critical distress. Leisure and culture firms followed at 65.9%, while 51% of sports and health club businesses were also in a critical position. BTG noted that firms have been hit by higher national insurance contributions and other tax increases over the past year, as well as energy and materials inflation following the outbreak of war in the Middle East.
Julie Palmer, managing partner at BTG, said businesses reliant on discretionary spending would be disappointed by the lack of a consumer confidence recovery. “Instead, the threat of rising energy bills, inflation, interest rates and unemployment will see people tightening their belts,” she said. “Inevitably we expect to see an increasing number of ‘zombie’ businesses tipped over the edge this year. However, we are even starting to see some of the more successful businesses take a more cautious attitude than you might expect as they put cash aside to soak up higher costs and weak demand.”
Ric Traynor, executive chairman of BTG, said the shockwaves from the Middle East war would be felt across the global economy. “After initial signs that the UK’s GDP was improving at the very start of the year, it now feels like after taking a step forward, the UK has taken a few steps backwards following one of the most severe energy shocks in living memory,” he added.
