“A fall in the levels of distress here is always welcome, and to see Scottish businesses fare better than the UK average is good news for the region’s economy” – Thomas McKay, BTG
Business distress levels have shown a welcome fall in Scotland, according to new figures, but some sectors remain a “cause for concern”, experts have warned.
The latest Red Flag Alert data from financial advisory group BTG shows significantly fewer “critical” and “significant” instances of financial distress among Scottish firms in the third quarter of 2026, when compared to the same period in 2025, while improving ahead of the wider UK trend.
The quarterly report, which has been running since 2004, reveals that levels of the most serious “critical” instances of distress in businesses across Scotland fell by 23.6 per cent year-on-year (to 2,098), compared with an UK average fall of 20.7 per cent. In total, 18 of the 22 industry sectors monitored witnessed a drop in levels of critical distress, year on year, with the largest falls found in the automotive sector (down by 49.5 per cent), general retailers (-46.1 per cent), support services (-36.5 per cent) and health and education (-33 per cent) sectors.
Three sectors saw rises in levels of critical distress year on year - these were printing and packaging (+50 per cent), hotels and accommodation (+45.2 per cent) and utilities (+4.6 per cent).
Less serious instances of “significant” early financial distress, which are also measured in the data every three months, showed a small fall of 3 per cent from levels in the third quarter of 2025, countering the wider UK average rise of 1.6 per cent across all regions.
The data indicated that 14 of the 22 sectors saw a drop in levels of significant distress year on year. The most notable falls were in utilities (-25.5 per cent), manufacturing and wholesale (both down 23.9 per cent), industrial transportation and logistics (-21.8 per cent) and food and beverages (-20.5 per cent).
In addition, eight of the 22 sectors monitored showed levels of significant distress climbing year on year. The most prominent increases were within real estate and property services (+7.5 per cent), general retailers (+3 per cent), health and education (+2.4 per cent) and food and drug retailers (+2.3 per cent).
Thomas McKay, managing partner for BTG Scotland, said: “A fall in the levels of distress here is always welcome, and to see Scottish businesses fare better than the UK average is good news for the region’s economy.
“When compared with the same period a year ago, to see falls in both significant and more serious critical distress instances shows that Scottish businesses are adjusting to the headwinds in the market better than their counterparts in most other regions of the UK.
“There are, however, pockets of distress that are cause for concern in Scotland, and it would be wrong to say there are not parts of the economy, and key sectors, that are struggling,” he warned.
“We’re keeping a particularly close eye on critical distress levels in printing and packaging, hotels, and utilities business, all of which saw increases in the most serious measures of financial pressure, in sectors that are significant employers here in Scotland.”