New research indicates a nuanced picture for the corporate health of North East England, with a slight deceleration in the growth of early-stage business distress, yet a concerning surge in the most serious financial difficulties.
A Mixed Picture of Regional Corporate Health
The latest quarterly Red Flag Alert research from business recovery specialist Begbies Traynor shows the number of North East firms experiencing significant or early-stage financial distress reached 13,676 in the final quarter of 2025. This represents a 7.9% increase compared to the previous quarter and an 11.5% rise year-on-year.
While this continues an upward trend, the rate of increase has moderated slightly. The growth between the second and third quarters of 2025 stood at 8.2%, meaning the Q4 figure of 7.9% shows a marginal slowdown in the pace at which companies are entering financial difficulty.
National Context and Regional Sectoral Variations
This regional slowdown mirrors a more pronounced national trend. Across the UK, early-stage distress rose by just 0.3% quarter-on-quarter, with a total of 728,640 firms affected, representing an 11.3% annual increase.
Within the North East, the data reveals significant sectoral disparities. Several industries actually saw a reduction in distress levels between Q3 and Q4 2025:
- Bars and Restaurants: A 2.9% decrease, with 535 businesses affected.
- Travel and Tourism: An 8.6% fall, impacting 74 firms.
- Industrial Transport and Logistics: A 6.4% reduction, with 235 businesses affected.
Conversely, other sectors faced sharp increases in financial strain:
- Print and Packaging: A dramatic 73.3% quarter-on-quarter rise, affecting 52 firms.
- Food and Drink Production: A 32.2% increase, impacting 123 businesses.
- Hotels and Accommodation: A 27.9% rise, with 156 businesses affected.
Alarming Rise in Critical Distress
Perhaps the most worrying finding is the steep increase in the most severe financial problems. The research shows 1,280 North East firms were experiencing advanced or critical distress in Q4 2025. This marks a substantial 27% increase from the previous quarter and a staggering rise of more than 39% compared to the same period in 2024.
This indicates that while the flow of companies into early-stage difficulties may be plateauing, those already in trouble are seeing their situations deteriorate rapidly towards potential insolvency.
Expert Analysis and Economic Outlook
Andrew Little, partner for Begbies Traynor in the North East, commented on the findings. "We may be seeing a slight plateauing in early-stage distress as the rate of increase slows," he said. "This comes as some positive economic indicators begin to filter through. November’s small uptick in GDP, for example, hints at a wider cooling of inflationary pressure and a potential gradual improvement in trading conditions."
However, he expressed concern about the divergent trend in serious distress. "The steeper rise in more advanced distress tells a different story: this is where financial problems have already become more acute and, without intervention, could lead to insolvency. It is also worrying that the region’s food and drink producers had an unexpectedly challenging three months in a quarter that, in the run up to Christmas, is normally strong, with increased festive demand and production at capacity."
Gillian Sayburn, another partner at Begbies Traynor, added a note of caution regarding the broader economic climate. "While the pace at which distress is increasing may be slowing, businesses across the North East are still grappling with weaker consumer spending, elevated costs and higher borrowing rates," she noted. "For any firm worried about escalating financial strain, accessing advice early can make a real difference to the range of options available."
The report paints a complex picture for the North East economy, suggesting a tentative stabilisation in some areas but highlighting acute pressures in others, with the rise in critical cases posing a significant threat to regional business stability.
