Bar and restaurant sector sees biggest jump in firms in 'critical' financial distress

The hospitality and travel industries have seen the greatest increase in businesses in critical financial distress over the last 12 months.

The latest Red Flag report from Begbies Traynor said the overall number of businesses in critical distress rose 13.1% to 45,416 in the first quarter of 2025.

It said there were 1,941 bars and restaurants in critical distress during the period, a 31% rise.

There was also a 25.5% rise in travel and tourism businesses in critical distress, and a 15.4% rise in the number of hotels and accommodation firms in the same category.

“These sectors, which are notorious for operating on tight margins, are bracing themselves for further economic fallout from both domestic tax increases and US tariffs which could push many over the edge,” said Julie Palmer, partner at Begbies Traynor.

Begbies Traynor has previously said a company can be considered to be in critical financial distress if it has an outstanding county court judgment of more than £5,000 or faces a winding up petition.

More than a third of companies in this category were from three bellwether sectors: real estate and property services (6,480 companies), construction (6,367 companies) and general retailers (3,401 companies), which the report said highlighted the “perilous situation for the UK economy”.

Palmer said: “As we progress through 2025, optimism remains in short supply for UK businesses. The first quarter of the new year started positively with unexpected economic growth figures, positive retail sales and cooling inflation – and that is reflected in our latest data.

“Indeed, the travel and hospitality sectors may see an opportunity to attract tourists looking to holiday somewhere else other than the United States. However, every business in the UK will have their eyes fixed on the impact of US tariffs and increases to homegrown taxes and that could make the situation even worse.”

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