While overall levels of 'critical' financial distress among UK businesses are continuing to fall as the recovery gets underway, there has been an increase in the number of firms in the professional services, financial services and support services sectors reporting problems, according to a survey by Begbies Traynor.

The firm's Red Flag Alert research for Q3 2013 shows that across all sectors, UK businesses experiencing 'critical' financial problems reduced 2% from 3,001 in Q2 2013 to 2,951 in Q3 2013, following a 9% reduction the previous quarter. There were significant improvements in the UK's consumer-facing industries including bars and restaurants (distress levels down 30%), hotels (21%), food retailing (16%) and general retail (8%).

However distress levels in the professional services sector were up 34% in the same period, and there were also rises in the financial services (28%) and support services (9%) sectors. Begbies Traynor's analyis shows these increases bring the total number of services businesses suffering 'critical' distress up to 330, of which 83% are SMEs. The firm says declining net worth and increasing working capital deficits are driving the reported increases in distress among this group.

Julie Palmer, partner at Begbies Traynor, said: 'While transactional volumes have picked up across the sectors, they have remained at historically low levels, meaning that smaller, people businesses have struggled to maintain market share during the fallow summer months in the face of competitive pressure for new business from their larger peers. Given their significant high fixed cost bases and working capital requirements, the hopes of these SMEs will be firmly pinned on strong trading in the final quarter of the year, while effective management of their cost base and an improvement in the lending environment will be crucial to reverse this worrying trend.'