The incidence of businesses in “critical” distress grew in Scotland at a faster pace than any other part of the UK in the second quarter compared with the same period last year, a new report has found.
The latest Red Flag Alert from insolvency specialist BTG has revealed a 21% rise in incidences of the most serious distress among companies north of the Border to 2,830, ahead of the UK average increase of 9%.
Thomas McKay, managing director of BTG in Scotland, described the finding as “highly concerning and suggests that there will be more businesses that face substantial challenges in coming months unless they are able to put safeguards in place to mitigate cash flow problems”.
Sixteen of the 22 sectors measured by the report saw a rise in the levels of critical distress, year on year. The financial services sector, with a 79.2% rise, was the most affected, followed by wholesale (+63.9%), media (+63.8%), and food and drug retailers (+58.5%).
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The report also measured the incidence of “less serious” early financial distress, which showed a small increase of 1.7% in Scotland in the second quarter compared with the same period last year. This was slightly ahead of the UK average of 1%, although the report found that some key sectors showed “notably higher levels of increase”.
In total, 11 of 22 sectors saw a rise in levels of significant financial distress in Q2 2026 compared with the previous year. The sectors with the most severe increases included printing and packaging (+32.1%), real estate and property services (+16.7%), travel and tourism (+14.9%) and automotive and general retailers (both +7.3%).
“The fact that Scotland leads the UK in the rate of increase in critical financial distress levels, with a rise of over 20% is highly concerning, and suggests that there will be more businesses that face substantial challenges in coming months unless they are able to put safeguards in place to mitigate cash flow problems,” said Thomas McKay, managing partner for BTG in Scotland.
“We’ve again seen year-on-year rises in the most serious instances of distress and that speaks to just how difficult the situation looks for many businesses with rising energy costs, higher wages and the generally higher prices of raw materials.
“The fact that travel and tourism businesses, that are such huge employers in Scotland, are seeing increases in early signs both year-on-year and quarter-on-quarter is also a big concern for the industry.
“The coming months will be critical for many businesses here, and some management teams will have to make difficult decisions to ensure the long-term survival of their businesses.”
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