RCS - Begbies Traynor Grp - Latest Red Flag Alert Report for Q4 2025

Begbies TraynorAnnouncement

29/01/2026 07:00

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RNS Number : 8065Q  Begbies Traynor Group PLC  29 January 2026

29 January 2026

 

Thousands of UK businesses at 'critical' tipping point

 

'Zombie' businesses near collapse as critical financial distress increases and
gap between companies thriving or surviving widens

 

Highlights:

·      In Q4 2025, the number of businesses in 'critical' financial
distress surged 43.8% year-on-year, with 67,369 companies now affected (Q4
2024: 46,853), and a 21.3% increase on Q3 2025

·      All 22 industries monitored by Red Flag Alert experienced a
double-digit percentage increase in 'critical' financial distress versus the
same period last year

·      Consumer-facing industries remain under severe pressure, with
Leisure & Cultural Activities (+59.1%), Hotels & Accommodation
(+53.7%) and Bars & Restaurants (+39.0%) showing the highest increases in
'critical' financial distress

·      'Significant' financial distress increased 11.3% year-on-year to
728,640 firms (Q4 2024: 654,765); this slowed to an increase of just 0.3% in
the final quarter of 2025 (Q3 2025: 726,594)

·      Real Estate & Property Services (+23.5%) and Leisure and
Cultural Activities (+14.2%) experienced some of the highest increases of
'significant' financial distress in the quarter

 

The latest Red Flag Alert
(https://protect.checkpoint.com/v2/r06/___https:/www.redflagalert.com/___.ZXV3MjpuZXh0MTU6YzpvOmZmOTIxZTEwMTQwMjE1ODg1NDk5OThiNGEwZjlhM2NiOjc6MTk0ZTpmNDY4NGY5MjdhMWFkNmQzMWJlYzA2NTEyZTFhYjFlMGQ1NTA4MmFmZDZlZmIxN2VhM2NmYzM3MjZjODg5ZjA2OnA6VDpU)
research from Begbies Traynor
(https://protect.checkpoint.com/v2/r06/___https:/www.begbies-traynorgroup.com___.ZXV3MjpuZXh0MTU6YzpvOmZmOTIxZTEwMTQwMjE1ODg1NDk5OThiNGEwZjlhM2NiOjc6N2Y5Njo3MDk0NzNiNzhmOWM5YjAzM2NkYzkzZTRjMWIxNmU0MzJmNTU2NTNlMTUwODYwZTNkYjA1OGU0YjgyMzEzMWUyOnA6VDpU)
, has revealed a considerable 43.8% year-on-year increase in 'critical'
financial distress in Q4 2025.

 

Throughout 2025, UK businesses continued to grapple with a prolonged period of
economic uncertainty, rising operating costs, driven by inflation and higher
wages, increased tax burdens, elevated interest rates, and weakened consumer
demand. The persistence of these pressures into 2026 is increasing the
possibility that tens of thousands of 'zombie' companies will fail.

 

As of 31 December 2025, 67,369 companies were in 'critical' financial
distress, a 21.3% rise on the previous quarter (Q3 2025: 55,530). Notably,
this rise in 'critical' distress was widespread, with all of the 22 sectors
monitored by Red Flag Alert reporting a deterioration in financial health when
compared to the same period last year.

 

Consumer-facing industries, which are heavily reliant on discretionary
spending, have been particularly badly affected following weaker than expected
consumer spending during the crucial 'Golden Quarter' over Christmas last
year. Leisure & Cultural Activities (+59.1%), Hotels & Accommodation
(+53.7%) and Bars & Restaurants (+39.0%) saw some of the steepest
increases in 'critical' financial distress over the last 12 months.

 

Meanwhile, the number of businesses in 'significant' financial distress
continued to climb in 20 out of 22 sectors tracked by Red Flag Alert in 2025,
albeit at a slower rate than previously experienced. There was an 11.3%
year-on-year increase to 728,640 firms (Q3 2024: 654,765), following just a
0.3% increase from 726,594 in Q3 2025. In 2025, the highest annual increases
were seen in the Real Estate & Property (+23.5%), Utilities (+17.8%) and
Leisure & Cultural Activities (+14.2%) sectors.

 

Julie Palmer, Partner at Begbies Traynor, said:

"During the crucial final quarter of 2025, the UK economy continued to
experience subdued levels of consumer confidence. This has had a painful
impact on the hospitality, retail and housing sectors, which have been under
considerable pressure for some time.

 

"Whilst there have been some winners amongst the larger, household names
during the Golden Quarter, our research shows that smaller businesses up and
down the country are starting the new year with some very difficult choices
ahead, as the weight of slower spending and increased running costs bring them
to near breaking point.

 

"This highly challenging trading environment has created a growing number of
'zombie' businesses which are likely to fail unless they can attract new
investment or be acquired by more agile companies. While many of these
organisations have struggled along for years, we see a new catalyst in 2026
that could push some over the edge, as HMRC starts to call in some of the
£27bn in overdue Corporation Tax, PAYE and VAT following the pandemic.

 

"During 2026, I expect to see more businesses enter formal insolvency, further
increasing unemployment, and meaning it will become ever more critical for
businesses that survive to create new jobs and opportunities. Over the years,
there have been many tipping points for zombie companies, but the heightened
level of critical distress combined with weak consumer spending, compounding
cost inflation and action from HMRC, could mark another milestone."

 

Ric Traynor, Executive Chairman of Begbies Traynor, said:

"The continued rise in critical financial distress is clearly concerning for
the UK economy. Last year was not easy for UK businesses, and the start of
2026 suggests there is no relief in sight, with the macro-economic environment
scarred by geopolitical uncertainty and trade policies.

 

"Domestically, an increasing employer tax burden, combined with faltering
consumer confidence, rising unemployment  and still high interest rates, have
added further pressures to the shoulders of business leaders. It is a complex
and difficult landscape for every business right now, but I fear it is
becoming increasingly obvious that some sectors are more vulnerable than
others.

 

"Sectors including construction, hospitality and retail have had a tough year
in 2025. So, as we start 2026, they will be hoping for some degree of
certainty around the obstacles ahead. It will be critical that there are no
more surprises from the Government.

 

"Sadly, many may not see a viable way forward without a drastic change to the
macro-economic backdrop. This will create opportunities for the few businesses
which have the right management teams, strategy and resources to take market
share, at the expense of the many that we expect to see fall away."

 

-- ENDS --

 

 Most significantly Distressed Industries         Number of businesses in significant distress  Most critically distressed industries            Number of businesses in critical distress
 Support Services                                 109,169                                       Construction                                     9,981
 Construction                                     108,213                                       Support Services                                 9,618
 Real Estate & Property Services                  93,142                                        Real Estate & Property Services                  8,961
 Professional Services                            63,943                                        Professional Services                            5,171
 Health & Education                               50,077                                        General Retailers                                4,707
 General Retailers                                47,099                                        Health & Education                               4,376
 Telecommunications & Information Technology      45,745                                        Telecommunications & Information Technology      3,718
 Media                                            29,985                                        Media                                            2,799
 Financial Services                               21,961                                        Bars & Restaurants                               2,441
 Leisure & Cultural Activities                    20,884                                        Food & Drug Retailers                            2,248

 Significant distress by region                                                                 Critical distress by region
 London                                           206,773                                       London                                           20,314
 South East                                       125,180                                       South East                                       11,083
 Midlands                                         88,612                                        Midlands                                         7,969
 North West                                       74,268                                        North West                                       6,802
 South West                                       53,463                                        South West                                       4,717
 Yorkshire                                        50,201                                        Yorkshire                                        4,579
 East of England                                  47,265                                        East of England                                  4,102
 Scotland                                         36,873                                        Scotland                                         3,517
 Wales                                            19,788                                        Wales                                            1,896
 North East                                       13,676                                        North East                                       1,280
 Northern Ireland                                 12,463                                        Northern Ireland                                 1,102

 

For further information, contact:

 

 MHP Communications:  07557 741 217

 Katie Hunt           07770 753 544

 Charles Hirst        Begbies@mhpgroup.com (mailto:BegbiesCorporate@mhpgroup.com)

 Ally Bayne

 

Notes to Editors

 

About Red Flag Alert

 

Red Flag Alert has been measuring and reporting corporate financial distress
since 2004. It has become a benchmark on the underlying health of companies
across every sector and region of the UK.

 

Red Flag Alert's algorithm measures corporate distress signals, drawing on
company accounts and factual, legal and financial data from a wide range of
relevant sources, including intelligence from the UK's leading insolvency
business, Begbies Traynor. The algorithm was refreshed in H1 2023 to enhance
the risk factors analysed in the data. The reported results have been
backdated to ensure the consistency of comparative data.

 

Algorithms which drive Red Flag Alert were improved at the end of 2023, with
companies now measured against a new scorecard of indicators to give greater
insight and accuracy into the health of businesses. Two years of work by data
scientists analysing eight years of data, taking into consideration pre,
during and post-pandemic insights to find signals and patterns indicating
businesses in distress, combined with AI tools, means that Red Flag Alert aims
soon to be able to predict how many companies in trouble will go on to fail.

 

The release refers to the number of companies experiencing "Significant" or
"Critical" problems, which are those that have been identified by Red Flag
Alert's proprietary credit risk scoring system which screens companies for a
sustained or marked deterioration in key financial ratios and indicators
including those measuring working capital, contingent liabilities, retained
profits and net worth.

 

Red Flag Alert is commercially available to all businesses, on an annual
subscription basis, to help them better understand risk and exposure and help
subscribers to plan for the future. Further information about Red Flag Alert
can be found at: www.redflagalert.com
(https://protect.checkpoint.com/v2/r06/___http:/www.redflagalert.com/___.ZXV3MjpuZXh0MTU6YzpvOmZmOTIxZTEwMTQwMjE1ODg1NDk5OThiNGEwZjlhM2NiOjc6M2QwNTplZjk1NzViYWRjOTc4NGU4YThiNDExMGZhNGVhMDgwYjIzMThjMWFmN2JlNzA0Y2IzZjBjMDZkNDYyOGNkNzg0OnA6VDpU)

 

Economically active businesses exclude those that are flagged by Companies
House as being, Non-trading, Listed for Strike off / Strike off pending,
Insolvent or Dissolved. Companies where there is insufficient information
available for RFA to assign a health rating are also excluded.

 

About Begbies Traynor Group plc

 

Begbies Traynor Group plc is a leading UK advisory firm with expertise in
business recovery, advisory and corporate finance, valuations, asset sales and
property consultancy.

We have over 900 fee earners operating from 45 locations across the UK,
together with four offshore offices. Our multidisciplinary professional teams
include insolvency practitioners, accountants, lawyers, funding professionals
and chartered surveyors.

·      Business recovery

o  Corporate and personal insolvency; business restructuring and turnaround;
contentious insolvency; creditor services

·      Advisory and corporate finance

o  Debt advisory and finance broking; corporate finance; special situations
M&A; financial advisory

·      Valuations

o  Property, business and asset valuations

·      Asset sales

o  Property, plant and machinery auctions; property and business sales agency

·      Property consultancy

o  Building consultancy; transport planning; commercial property management;
insurance and protection

Further information can be accessed via the group's website at:
https://www.begbies-traynorgroup.com/
(https://protect.checkpoint.com/v2/r06/___https:/www.begbies-traynorgroup.com/___.ZXV3MjpuZXh0MTU6YzpvOmZmOTIxZTEwMTQwMjE1ODg1NDk5OThiNGEwZjlhM2NiOjc6NTdmODpiNGE3NmMzMDY1YjRkODJiMDVmZGFmNDYyMmY3MjkxNDQwYmY3YWM1ZjZmNDViYWUzZmFiZjIyMDZkYjM2ZjAxOnA6VDpU)

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