Latest Red Flag Alert for Q2 2026

Highlights:

• In Q2 2026, the number of UK businesses in 'critical' financial distress increased by 9.0% year-on-year to 53,756 (Q2 2025: 49,309)
• Consumer-facing industries remain under severe financial pressure with some of the highest annual increases in 'critical' financial distress:

o Leisure and Cultural Activities 1,478 (+27.1% YoY, Q2 2025:1,163)

o Hotels and Accommodation 510 (+26.5% YoY, Q2 2025: 403)

o Sports and Health Clubs 980 (+21.0% YoY, Q2 2025: 810)

o Food and drug retailers 2,350 (+18.4% YoY, Q2 2025: 1,985)

• Steady increase in 'significant' financial distress of 1.1% year-on-year to 674,030 firms (Q2 2025: 666,876)
• The sectors with the highest numbers of companies in 'significant' financial distress include:

o Support Services 103,815 (+1.4% YoY, Q2 2025: 102,380)

o Construction 101,568 (-0.7% YoY, Q2 2025: 102,285)

o Real Estate and Property Services 88,855 (+9.0% YoY, Q2 2025: 81,516)

The latest Red Flag Alert research from BTG, the leading financial and real estate advisory group, has revealed the number of businesses in 'critical' financial distress in Q2 2026 stood at 53,756, following a year-on-year increase of 9.0% from Q2 2025.

This latest Red Flag Alert indicator of business distress sits against a backdrop of macroeconomic uncertainty and increased operational, employment, tax and supply chain costs. As businesses continue to acclimatise to these challenging market conditions, BTG's data suggests that UK firms are struggling with their financial health as we enter the second half of 2026.

At an industry level, all but one of the 22 sectors monitored by Red Flag Alert registered a year-on-year increase in 'critical' financial distress. Among the worst affected by annual increases were consumer-facing industries, including Leisure and Cultural Activities (+27.1% YoY), Hotels and Accommodation (+26.5% YoY), Sports and Health Clubs (+21.0% YoY) and Food and drug retailers (+18.4% YoY).

The research, which has monitored the financial health of UK companies for more than two decades, also found a steady year-on-year increase of 1.1% in 'significant' distress to 674,030 firms

(Q2 2025: 666,876), with the sectors showing the highest numbers including Support Services (+1.4% YoY), Construction (-0.7% YoY) and Real Estate and Property Services (+9.0% YoY).

Adding to the pressure on businesses, winding-up petitions are rising. In 2025, Ministry of Justice data recorded 6,411 winding-up petitions, a 15.7% increase on the previous year (5,543). An FOIA request by BTG found that HMRC was owed around £27bn in Corporation Tax, VAT and PAYE at the end of 2025, underlining the level of overdue liabilities across UK businesses and the pressure facing indebted companies from increasing creditor enforcement activity.

Julie Palmer, Managing Partner at BTG, said:

"The persistent rate of critical and significant financial distress in the UK is a clear sign that businesses are walking a tightrope as we move through the second half of 2026. While some may be getting used to operating in this challenging environment, it is highly unlikely that business leaders will be feeling optimistic. Indeed, any further increases to energy costs or inflation, could accelerate financial distress and many will be thinking about restructuring or refinancing activities in a bid to improve their current situation.

"This is particularly true for consumer-facing industries reliant on discretionary spending who will be hoping for a boost from summer sales, alongside sectors reporting increasingly difficult trading conditions.

"Against this backdrop, businesses and investors will be looking for support and clarity as soon as possible from the government. Business leaders will be desperate to avoid the prolonged period of uncertainty they experienced before the last Autumn Budget and will be hoping the new Prime Minister provides them with some clarity. As we have seen before, most firms can navigate choppy waters if they have time to prepare."

Ric Traynor, Executive Chairman at BTG, said:

"Against a backdrop of ongoing geopolitical challenges, there appears to be no relief in sight for distressed UK businesses. The rise in winding

"Whilst the extent of the impact is still unknown the escalation in winding up petitions is an ominous sign. With insolvency rates typically lagging economic distress, we could see increases in insolvencies in 2027.

"Rising energy prices are likely to push inflation higher again this autumn, squeezing consumers just as borrowing costs remain elevated. That would be a difficult backdrop for most sectors, but especially those reliant on discretionary spending, where confidence is already fragile.

"Sadly, when confidence and spending remain subdued, I expect the resulting shockwaves to be felt across many other industries later this year and into 2027."

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, BTG Begbies Traynor. The algorithm was refreshed in H1 2023 to enhance the risk factors analysed in the data and the measurement continues to evolve each quarter for accuracy. 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

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.