More businesses in the North East see early signs of financial distress amid economic uncertainty
With the disruption of continued conflicts around the world and the threat of US trade tariffs, the latest Begbies Traynor Red Flag Alert research reveals that UK businesses are already being impacted by the uncertain global climate. In the North East, growing numbers of businesses showed signs of early financial distress in the second quarter of 2025, both compared with the previous quarter and with the same period the previous year.
The report, which has provided a snapshot of corporate health in the UK for almost two decades, shows that instances of ‘significant’ or early-stage business distress rose by 9.7% between Q1 and Q2 2025. With 11,711 firms in the region now affected, the level was also 3.4% higher than the second quarter of 2024.
The upward trend was reflected across the UK with a 15.1% rise quarter-on-quarter and a 10.8% increase year-on-year, representing 666,876 businesses nationally which were showing early signs of financial distress.
Almost all sectors in the North East saw increases in significant distress in the second quarter of 2025 compared with the previous three months, with six of the 22 industry categories monitored by Red Flag Alert experiencing double digit growth. Among the worst affected were: professional services (+24.4%); real estate and property (+18.6%); construction (+15.3%); and telecoms (+13.1%).
In contrast, the sectors in the North East to see the greatest quarter-on-quarter drops in early distress were: printing and packaging (-38.5%); utilities (-27%); food and beverages (-15.9%); and travel and tourism (-13.2%).
Andrew Little, partner for Begbies Traynor in the North East, said: “Unfortunately, after a disruptive few years, a number of factors including international conflicts and trade wars are continuing to create an unstable environment which is having a negative impact on firms here in the North East and across much of the UK. Businesses desperately need certainty in order to thrive, but there seems to be little prospect of this as global turmoil further damages confidence and makes future planning extremely difficult.”
In addition to the growth in early-stage financial distress, instances of advanced or ‘critical’ financial distress, both in the North East and across the UK, also increased. A total of 885 businesses in the region experienced this type of distress, representing a rise of 13.2% since the previous quarter and of 19.1% compared with the same period the previous year. This was close to the national levels which saw rises of 8.6% quarter-on-quarter and 21.4% year-on-year. Across the UK, 49,309 businesses were affected by advanced distress in Q2 2025.
Looking at critical distress in the North East, some sectors saw decreases compared with the same period the previous quarter. Amongst the best performing sectors were: hotels and accommodation, and transport and logistics (both -62.5%); sports and health clubs (-45.5%); food and beverages (-40%); health and education (-34.8%); and manufacturing (-25%). In contrast, some of the worst hit sectors were: professional services (+80%); support services (+58.3%); and automotive (+50%).
Partner Gillian Sayburn added: “Worryingly, businesses that were already struggling are now facing even greater costs following the increases in national insurance contributions and a rise in the national living wage introduced earlier this year. In such tough conditions, it’s not surprising that we are seeing increasing instances of early distress. It is vital that business owners are aware of the dangers and keep a very close eye on their finances – always seek professional advice as soon as financial problems become apparent, when more can be done to prevent them from escalating.”