- Begbies Traynor's latest Red Flag Alert report shows a big rise in firms in 'significant' distress in the second quarter.

The alert - which monitors the financial health of 'corporate UK' - said levels of 'significant' distress among UK businesses increased by more than 34% over the past year from 176,677 in Q2 2013 to 237,362, marking the third consecutive quarter of deterioration for this growing group of struggling businesses.

The data separately revealed that levels of more severe 'Critical' distress fell by 9% over the past 12 months to 2,745; a less substantial volume when compared with the companies suffering 'Significant' distress but, positively, the ninth consecutive quarter of year on year improvement in this category. The research reveals that levels of 'Significant' distress have been primarily driven by small to medium sizes businesses (SMEs), who experienced a 40% rise in distress over the past 12 months to 217,855 (Q2 2013: 155,253). Meanwhile, among large companies distress levels actually fell by 9% to 19,507 over the same period (Q2 2013: 21,424). The deteriorating fortunes of SMEs spells bad news for the economy at a time when there are a number of near term challenges on the horizon for UK businesses, including political change, a stubborn lending environment and the prospect of interest rate rises. With market commentators predicting that the Bank of England could announce a rate increase as early as November, Begbies Traynor estimates that a rise of as little as 1% could result in dire straits for a material number of the c.218,000 SMEs already suffering 'Significant' distress, many of which are still burdened with significant debts accumulated during the recession.

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