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The number of UK businesses in “critical financial distress” has risen by more than a third over the past year, according to a new report, with bars and restaurants, retailers and construction groups the hardest hit.

According to the “red flag alert” report released on Friday by insolvency specialist Begbies Traynor, 1,957 UK businesses were in critical financial distress in the second quarter of 2022, up 37 per cent from the same quarter last year.

The report said that higher labour, material and energy prices, as well as the withdrawal of government-backed Covid support programmes, were to blame for the increased strain on businesses.

Bars and restaurants, general retailers and construction companies were the most affected, with year-on-year rises of 70 per cent, 48 per cent and 36 per cent respectively, the report found.

“Having emerged from the pandemic, many companies were hoping for an economic boom but that has simply fizzled out, as supply chain issues and the invasion of Ukraine have taken their toll by driving up raw material and energy costs,” said Julie Palmer, partner at Begbies Traynor.

There were also high levels of distress in the support services, real estate, automotive and manufacturing sectors.

The report comes a day after the Bank of England warned that Britain faced a protracted recession, with inflation expected to hit 13 per cent by the end of the year.

Corporate insolvencies in England and Wales also rose in the second quarter, according to official data published this week.

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