The business rescue and recovery firm’s latest Red Flag Alert data, released every three months, shows the most serious ‘critical’ instances of distress rose by 49.5% year on year to 3,517 (from 2,353), ahead of the UK average increase of 43.8%. When compared with the previous quarter, totals in Scotland rose by 28.1%, again significantly higher than the UK average (21.3%) and the second largest of any UK region, only slightly less than the South West which saw rises of 40.9%. 

20 out of 22 industry categories monitored by Red Flag Alert saw critical distress levels rise since the same period a year earlier. The highest annual increases were reported in businesses in print and packaging (+200%); health and education (+134.7%); sport and health clubs (+100%); financial services (+91.2%), and food and drug retailers (+88.8%).

Instances of ‘significant’ distress, that signal earlier instances of financial stress, were also higher in the latest data, up by 12.8% to 36,873 in the last quarter of 2025 when compared with a year earlier. This was again a faster rise than the UK average increase of 11.3%. More concerning for Scotland’s economy was that when compared to the previous 3 months of 2025, the number of significant instances of distress was up by 7.5%, whereas the UK average rise was just 0.3%.

Every one of the 22 industry sectors saw rises in significant distress year on year. The fastest rises were seen in utilities (+38.7%); real estate and property (+23.7%); hotels and accommodation (+21.1%); automotive (+19.1%) travel and tourism as well as health and education (rising by 17.7% and 17.8% respectively).

Thomas McKay, managing partner for Begbies Traynor in Scotland, said: “Unfortunately, Scotland’s businesses are seeing distress rise, and worryingly the levels of distress are accelerating faster than across the UK economy as a whole.

“Our economy is particularly exposed in certain sectors that are hurting the most at present, including travel and tourism related businesses, utilities, real estate and professional services, all sectors that are currently under pressure in the UK. The fact that every single industry sector saw year on year rises in the earliest signs of distress, despite the fourth quarter traditionally being strong in retail and hospitality, which is highly unusual, is a very bad sign of things to come in future months.

“With continued uncertainty around global tourism, generally weak consumer confidence and reduced consumer spending domestically, in addition to the ongoing threats to exports that tariffs pose to many of our key manufacturing industries, sadly there isn’t very much light at the end of the tunnel.

“Scotland’s business leaders are resilient and resourceful, but there are hard times ahead and they will need to plan carefully and find new opportunities and operating models where possible. Well-prepared businesses with a realistic plan can weather the ongoing period of contraction that many industries are facing here, and across the UK as a whole.”