North East SMEs fend off financial distress during Q2 2025

The Business Distress Index from Real Business Rescue (part of the Begbies Traynor Group) looks at the financial health of UK SMEs and provides a regional breakdown of distress levels. The latest Q2 2025 release shows a 21% increase in the number of businesses in critical financial distress across the UK. This equates to 8,696 more businesses in critical distress in Q2 2025, which takes the total number of SMEs in this category to 49,309, up from 40,613 in Q2 2024.

Testing times for North East businesses

The regional statistics show that the North East of England saw a modest 3% increase in critical financial distress levels compared to other regions, such as the South East (+11%) or London (+17%). The number of businesses in critical financial distress in the North East increased from 11,329 in Q2 2024 to 11,711 in Q2 2025.

This indicates that as economic uncertainty affected the operations of thousands of SMEs nationwide, around 400 businesses in the North East were particularly hard-hit by the mild increase in distress levels across the region.

The sector breakdown shows that critical financial distress levels were the highest across Support Services (+31%), Real Estate and Property Services (+28%), and Construction (+16%). Of the 22 sectors analysed as part of the Business Distress Index, all showed a year-on-year increase in financial distress.

The sectors that experienced a significant drop in financial distress were Printing and Packaging (-23.5%), Manufacturing (-11.6%), and Industrial Transportation and Logistics (-10.1%).

Key events during Q2 2025

UK SMEs endured many challenges throughout Q2, including higher businesses taxes, which pushed many into a critical condition. Employers witnessed a substantial increase in operating costs due to higher Employers’ National Insurance Contributions and National Living Wage.

Inflation also peaked throughout Q2, which meant higher energy bills and more expensive borrowing. Businesses reliant on US exports saw prices rise due to new tariffs unveiled as part of the ‘Liberation Day’ announcement from the US President, Donald Trump.  

A life ring for financially distressed businesses As businesses absorb substantially higher operating costs, they must raise funds to offset their balance sheet and replenish cash flow to keep the wheels of their business greased, operations running, and creditors at bay. For professional company restructuring and corporate insolvency advice, email Gillian Sayburn, partner at Begbies Traynor Group (North East) at [email protected].