Scotland’s construction businesses are being hit hard by escalating levels of distress, according to research published today by Begbies Traynor.

As well as the construction and manufacturing industries, which have seen double-figure hikes in distress over the past 12 months, customer-facing sectors such as retail, leisure and cultural outlets, and sport and health businesses, have also been affected by increasing financial problems.

The quarterly Red Flag Alert data, which is produced by the business rescue and recovery firm, reveals that in Q3 this year, compared to the same three-month period last year, ‘significant’ distress levels rose in Scotland, by 27 per cent, to affect 24,000 businesses. The UK as a whole also saw a 27 per cent rise in ‘significant’ business distress.

‘Significant’ distress relates to businesses with decrees filed against them, or those showing a marked deterioration in key financial ratios, and is often a precursor to more serious, or ‘critical’ distress, referring to businesses that have had decrees totalling over £5,000 within a three month period or winding-up petitions against them.

Scotland’s construction industry is the sector with the highest number of distressed businesses. A total of 3,421 building firms are now affected by financial problems, a number which has risen by 26 per cent between Q3 2016 and Q3 2017. Retailers make up the second largest group of distressed businesses: year on year their numbers have risen in Scotland from 1,452 to 1,775, a hike of 22 per cent.

With double digit increases in significant distress a feature of almost every sector in Scotland’s economy over the 12 months to September, some of the most dramatic rises have been in telecommunications (50 per cent), professional services (45 per cent), leisure and cultural activities (43 per cent) and sport and health related businesses (37 per cent).

Ken Pattullo, who heads Begbies Traynor in Scotland, said: “It is worrying that distress levels are rising so decisively and affecting industries across the board in Scotland and throughout the UK. The construction sector is vulnerable to any broad decline in investment and the fact that major building projects such as the Queensferry crossing have been completed will also be having a negative effect.”

He added: “With interest rate rises now set to become a reality, either sooner or later, we may well see that businesses have overstretched themselves after being lulled into a false sense of security by the continued low interest rate environment. Combined with the ever-expanding consumer credit bubble, which could burst at any moment, this spells extremely bad news unfortunately for beleaguered Scottish businesses with high levels of debt.”