In Scotland, levels of advanced or “critical” distress in the latest quarter were particularly stark, rocketing by 82.5% year-on-year, and by 17% since Q2 2025 affecting just under 2,750 businesses in the country.

Providing a quarterly snapshot of UK’s corporate health, the Red Flag Alert data shows that these increases were higher than the UK total. Across the UK, ‘critical’ distress rose by 78% since Q3 2024, and by 12.6% since Q2 2025 with more than 55,500 businesses now categorised as being in this advanced distress.

In the third quarter of 2025, almost 34,300 Scottish businesses fell into early or ‘significant’ financial distress. This number marked an annual increase of 9.4% and a quarterly increase of 9.7%.  Across the UK, there was a 14.8% year-on-year rise in ‘significant’ distress and a 9% quarter-on-quarter rise, resulting in almost 726,600 businesses now in ‘significant’ distress.

Thomas McKay, managing partner for Begbies Traynor in Scotland, said: “Unfortunately, the picture for Scottish businesses remains gloomy with the UK suffering from the worst inflation of any other major advanced economy, resulting in flat living standards.

“Despite a very slight expansion of GDP in August, growth across the UK remains sluggish with many businesses struggling as people see their real wages stagnating in addition to the unwelcome spectre of rising unemployment which is set to exacerbate the situation.”

Mr McKay continued: “It is extremely worrying to see financial distress rising across almost all sectors, and, in many cases, Scotland appears to be faring worse than other parts of the UK.

“As businesses and consumers wait to see the impact of the chancellor’s budget on 26 November, it is more important than ever that directors keep tight control of their finances and turn to professionals for expert advice as early as possible when there will be more tools available to prevent problems from spiralling out of control.”

Looking at ‘critical’ distress in Scotland, all 22 industry categories monitored by Red Flag Alert saw levels rise since the same period the previous year. Among the most marked annual increases were health and education (+ 150%, affecting 115 businesses); support services (+122%, affecting 463 businesses); and construction (426 businesses), bars and restaurants (142 businesses) and real estate and property (341 businesses), each experiencing a rise of over 90%.

In terms of ‘significant’ distress, all but one of the industry categories in Scotland saw quarterly increases. The most adversely impacted were utilities (+76.7%, affecting 318 businesses); manufacturing (+37.4%, affecting 981 businesses); financial services (+29.4%, affecting 943 businesses); and hotels and accommodation (+24.4%, affecting 515 businesses). Only bars and restaurants in Scotland saw a quarter-on-quarter fall in significant distress, down by 2.8% (affecting 1,256 businesses).