The number of UK businesses facing significant financial distress has reached a record high, according to new research published on the eve of the Chancellor's Budget statement.
There were 738,144 businesses in “significant” distress in the third quarter of 2026, the latest quarterly “red flag alert” report by BTG found. This was 1.6% higher than the same period last year, and the highest level since the insolvency firm began its research in 2004.
Widespread increases across sectors
Of the 22 sectors monitored, 20 experienced an increase in levels of significant distress. The signals, drawn from businesses' accounts, legal and financial data, indicate deteriorating financial health.
The real estate and property sector saw significant distress levels jump by a 10th year-on-year to almost 100,000 businesses. Construction rose by almost 5% to 108,340.
The hospitality industry also faced rising pressure ahead of the Christmas period, with significant distress jumping by 5% among bars and restaurants, and by 7% among food and drug retailers.
Drop in critical distress
Despite the rise in significant distress, the research showed a drop in the number of businesses on the brink of collapse. There were 44,033 businesses in critical financial distress in the third quarter, a fall of nearly 21% compared with the same period last year.
Julie Palmer, managing partner at BTG, said: “Record levels of 'significant' financial distress underline just how many businesses are approaching the autumn Budget with limited financial headroom.”
“While firms will naturally be looking for clarity on taxation and economic policy, many of the pressures they face extend well beyond any single Budget announcement.” She added that her “real concern” was the consumer-facing industries like leisure and hospitality, particularly in the run-up to Christmas.
Budget promises and economic backdrop
Chancellor John Healey has promised to give families and businesses “breathing space” at the Budget on Wednesday. The statement comes against a backdrop of rising inflation in the UK, with energy bills set to increase further in January as the impact of the Middle East energy shock continues to feed through into the cost of living.
Mark Fry, BTG's group chief executive, said businesses were asking whether the Budget can “support confidence and encourage investment against a backdrop of persistent inflation and elevated interest rates”.
“We hear from businesses that structural hurdles, weight of red tape, employment legislation and the tax burden alongside high interest and energy costs will need to be tackled if this is to be a Budget for business. It is by no means an easy task.”
