Difficult economic conditions are already impacting Scottish businesses with the latest data from leading independent business rescue and recovery specialist Begbies Traynor showing that in the first quarter of 2025 a growing number of firms in the country, along with much of the rest of the UK, saw signs of advanced financial distress compared with the previous quarter.
The Red Flag Alert data for Q1 2025, which provides a quarterly snapshot of Britain’s corporate health, revealed that instances of advanced or ‘critical’ financial distress in Scotland had risen by over 6% since Q1 2024. With almost 2,200 Scottish firms now affected, this type of distress saw a fall quarter-on-quarter, down by almost 7%, however, the report pre-dates the US announcement of trade tariffs in early April and the subsequent global turmoil.
The trend was similar across the UK with over 45,400 businesses seeing signs of critical distress, a hike of over 13% year-on-year and a drop of just over 3% since the final quarter of 2024.
Looking at ‘significant’ business distress, this also grew in Scotland with 28,657 firms in the country suffering from signs of early-stage financial problems in the first three months of the year, an increase of almost 3% compared with Q1 2024. This compares with a UK-wide hike of 4% in distress levels year-on-year, affecting 579,276 companies. There were quarter-on-quarter falls in significant distress both in Scotland (down by 12.4%) and across the UK (-11.5%).
Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “While the UK economy got off to a relatively positive start in the first quarter of the year – with the rate of inflation dropping to 2.6% in March and growth stronger than had been predicted – our latest Red Flag data shows that many businesses are on a knife edge.
“With Trump’s global tariffs disrupting fragile economic optimism, many fear that businesses both here in Scotland and across much of the rest of the UK should brace themselves for another tumultuous period. As global economic uncertainty hampers long-term planning, businesses would be well advised to batten down the hatches in the face of an unpredictable and damaging international trade war.”
The majority of sectors in Scotland saw increases in critical distress compared with the same period the previous year, with utilities the worst hit (up by 500%), while telecoms, travel and tourism, and general retailers, all saw rises of more than 50%.
In terms of significant distress, the most affected sectors in Scotland since Q1 2024 were: utilities (+21%); health and education (+16.6%); hotels and accommodation (+13.1%); and travel and tourism (+12.4%).
Just eight of the 22 industry categories monitored by Red Flag Alert saw decreases in significant distress levels in Scotland since the previous year, with printing and packaging (-20.7%), general retailers (-5.3%), bars and restaurants (-1.5%), and manufacturing (-1.1%) among those seeing some improvement.
Mr Pattullo continues: “There’s no doubt that businesses are once again facing precarious times with consumer spending likely to be curbed by rising household bills as energy costs continue to spiral and inflation is forecast to increase sharply next month. This is likely to be exacerbated by the global turmoil with fears that Chinese imports may be redirected from the US market into the UK, together with severe supply chain disruption damaging many sectors.
“Our advice to SMEs who see mounting financial problems is to seek professional advice as soon as possible when more options are available to avoid difficulties spiralling out of control.”
