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The number of UK businesses in ‘critical’ financial distress has surged as the economy cries out for certainty in Rachel Reeves’ November Budget. The number of businesses in ‘critical’ financial distress surged 78 per cent year-on-year, to 55,530 in the third quarter of 2025, up from 31,201 in the same quarter last year. The latest Red Flag Alert report from Begbies Traynor stated that economic uncertainty and inflation have weighed on the UK economy. Of the 22 sectors covered by the report, 21 experienced a rise in ‘critical’ financial distress of more than 40 per cent versus the same period last year. Consumer-facing industries are under the most severe pressure, including leisure and cultural activities, hotels and accommodation, and general retailers. London businesses account for the highest number of critically distressed firms (19,323) despite the concentration of financial services. It was reported that those in ‘significant’ financial distress also increased nearly 15 per cent year-on-year to 726,594 firms (Q3 2024: 632,756). But it was utilities, Real Estate and property services, and financial services that witnessed ‘significant’ distress. As a result, Begbies highlighted that many firms are “scaling back just to survive” rather than investing for growth, pointing to a broader economic slowdown. Begbies Traynor anticipated “rising insolvencies and a continued loss of economic confidence well into 2026” if the November Budget fails to deliver meaningful relief. Firms look for economic certainty in Budget The restructuring giant warned that Labour’s November Budget is a “critical phase” for businesses. The listed group also demanded “decisively pro-business” measures to counter high inflation, taxes, and borrowing costs, and to prevent a continued loss of economic confidence well into 2026. However, this comes as Reeves is staring down a £20bn fiscal black hole. She is reportedly already mulling a tax on banking giants, profits from limited liability partnerships (LLPs), and gambling. Julie Palmer, partner at Begbies Traynor, explained: “Unfortunately for UK businesses, inflation is going nowhere, putting further pressure on companies at a time when wage, tax, and financing costs are already high.” “Many firms have no room to manoeuvre, and instead of investing for growth, are scaling back just to survive – the opposite of what the economy needs, if it’s going to recover and grow,” she added. Palmer stated: “The government must get the Budget in November right, but the Chancellor faces a delicate balancing act between delivering ‘business friendly’ measures while balancing the books.” “There has been a lot of temperature testing in the run-up to November, but it is critical that the final measures are decisively pro-business,” she noted.
