British businesses are “struggling at an increasing rate” because of post-lockdown debt, inflation and falling consumer spending, according to a report from business advice group Begbies Traynor.

Its Red Flag Alert report, which has been taking the pulse of British business for more than 15 years, has revealed the intense strain an increasing number of companies are under, emphasising the pressure on small businesses.

It highlights that 23,885 county court judgments were served in the final three months of 2022 – an increase of 52% on the same period in 2021 and 77% higher than before the Covid-19 pandemic.

Begbies Traynor points to not only inflation, consumer spending and debt left over from the Covid lockdowns but also rising labour and materials costs, higher energy bills and recurring strikes.

The firm, which has teams specialising in insolvency, has also received anecdotal evidence that HM Revenue & Customs is cracking down on debts.

Julie Palmer, partner at Begbies Traynor, said: “What we are hearing from directors of businesses is extremely distressing. We came into 2022 hopeful that the pandemic was fully behind us and better times were ahead, only for Russia’s invasion of Ukraine to unsettle the global economy, leading to spiralling inflation and soaring energy bills and laying the foundations for what looks like a global recession.

“In the UK, in particular, strikes are just piling on the pressure as staff struggle to get to work and customers stay away.

“We’re taking calls from company bosses who are having trouble digging deep enough to keep battling on. They are already having to pay back the support they took to get through Covid and, anecdotally, we are hearing that both the Government and HMRC are becoming more determined in pursuing debts, while other creditors are increasingly turning to the law to recover their debts.

“Throw in a such a gloomy economic outlook, with inflation at 40-year highs and interest rates at levels not seen for 14 years, and you can see why more and more companies are starting to feel the burden of their debts, making directors question whether they can go on.

“Many of the companies captured by Red Flag Alert are SMEs, without the financial firepower larger enterprises have to fall back on. We should be applauding the directors of these smaller companies which make up the backbone of the UK’s economy for the incredible tenacity they have shown for so long.”

Data from this latest Red Flag Alert research revealed a 36% increase in number of companies rated as being in “critical financial distress” in the final quarter of 2022 compared to the same period a year ago – and 10% higher than in the preceding three-month period. This is the sixth consecutive quarter that businesses in critical distress levels have risen.

The report also found that there were 610,405 businesses across the UK rated as being in “significant financial distress”, a rise of 4% compared to the last three months of 2021.

Ric Traynor, executive chairman of Begbies Traynor, said: “Although we are – hopefully – about to pass the peak of inflation and the UK looks to have avoided recession at the end of last year, the strain is very clearly showing on businesses, as insolvency rates accelerate.

“Interest rate hikes look set to continue into Q2 2023 placing further strain on the finances of both businesses and consumers. This, combined with a far less generous business energy support scheme and legacy Covid debts, do not bode well for many SMEs, and I fear that failure rates will continue to rise well into 2024.”