Distressed UK Firms Pile Up as War Enters Third Month, Report Says

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(Bloomberg) — UK companies faced a sharp jump in “critical” financial distress at the start of 2026, underscoring the mounting pressure that rising costs and weak consumer demand are placing on businesses as the war in the Middle East enters its third month.

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Cases jumped by more than a third in the first quarter of the year, according to the latest Red Flag Alert by insolvency firm BTG. The increase was led mainly by consumer-facing sectors, with the sharpest rises registered in hotels and accommodation, as well as leisure and cultural activities, according to the report.

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The surge has been exacerbated by rising energy and materials costs after the outbreak of the war in Iran, the BTG report noted. A fresh spike pushed the price of a barrel of oil above $111 this week, up from around $70 at the end of February. 

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“Unfortunately, no company is immune to such a major energy shock,” said Julie Palmer, a managing partner at BTG. “We expect to see an increasing number of ‘zombie’ businesses tipped over the edge this year.”

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The figures add to signs of strain across the UK economy, where growth has slowed sharply, inflation is rising on the back of higher oil prices and the labor market is weakening. The surge in energy costs is squeezing household incomes and damping demand, complicating the Bank of England’s task as it balances weak growth against persistent price pressures.

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GDP slowed sharply in the second half of 2025, rising just 0.1% in the third and fourth quarters. Unemployment climbed to 5.2% earlier this year, matching the highest since the Covid crisis in 2021.

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The UK consumer prices index rose 3.3% from a year earlier, up from 3% the previous month. The Monetary Policy Committee is widely expected to leave borrowing costs on hold at 3.75% on Thursday as it awaits further clarity on the Middle Eastern conflict. 

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BTG’s report found that there were 62,193 companies in “critical” financial distress in the first quarter of 2026, 36.9% higher than in the first quarter of 2025. While critical financial distress fell 7.7% from the previous quarter, the decline reflects a typical seasonal pattern at the start of the year, the report said.

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One potential silver lining is that the domestic travel and tourism industry might benefit, Palmer said. 

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“With global jet fuel supplies waning and summer holidays abroad under threat, we could see a staycation boom at home this year,” she added, which could create “a much-needed lifeline for the hospitality, retail, leisure and tourism businesses across the country.”

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