The number of companies in significant financial distress has jumped 25% as firms grapple with sluggish consumer spending and Brexit-induced price hikes, new research has revealed.
The Begbies Traynor Red Flag report found that 329,834 firms were feeling the strain in the second quarter, up from 263,517 over the same period last year.
The move was the biggest annual rise since 2014 and marked the largest number of firms in distress for five years.
It said UK sectors relying on consumer spending had been hit the hardest, contributing to a 22% rise in distressed leisure firms at 8,206 in the second quarter.
Julie Palmer, partner at Begbies Traynor, said it was worrying to see so many firms struggling as Britain begins its divorce from the European Union.
She said: "In the UK's consumer-facing industries, weak real wage growth and rising levels of personal debt continue to put a strain on the retail, bars, restaurants and leisure sectors, where many businesses have been reluctant to fully pass on the inflationary impact of the weakened pound and higher staff costs from the National Living Wage, for fear of losing customers on price in an increasingly competitive marketplace."
Small-and-medium-sized businesses represented the lion's share of the struggling companies, rising 26% to 308,423.
However, there was still a 12% jump in the number of larger firms feeling the pinch at 21,411.
Ric Traynor, executive chairman at Begbies Traynor, said heightened uncertainty surrounding Brexit and the general election had heaped extra strain on firms.
He said: "Our Red Flag research shows that a recent loss of momentum in the economy is putting increased financial pressure on UK businesses, with SMEs bearing the brunt of this rising distress, as businesses contend with uncertainty over Brexit negotiations and an inconclusive election result, alongside rising costs.
"These significant increases in financial distress also point to a slowdown in business investment at a time when the overall growth rate of the UK economy remains stubbornly sluggish."
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