The number of businesses rated as being in ‘critical financial distress’ jumped by 25% to 2,090 in Q3 compared to the same time last year, in the latest Begbies Traynor Red Flag report.

With the official rate of inflation at 10.1%, businesses now face the prospect of interest rates climbing above 5%, a move that could force distressed businesses to enter insolvency as debt accumulates over time.

Many ‘zombie’ businesses, which benefitted from government-backed covid support loans, now face a series of risks, ranging from soaring interest rates, rising costs and declining demand.

There are nearly 610,000 companies in significant financial distress, according to the report – representing an 8% yearly increase and a 4% quarterly increase.