Nearly 50,000 UK companies are on the edge of collapse as rising costs, driven in part by recent tax and wage hikes, continue to squeeze small and medium-sized businesses, according to new data.

A report by insolvency specialists Begbies Traynor found that the number of firms in “critical financial distress” surged by 21.4 percent in the second quarter of 2024, compared to the same period last year. The total now stands at 49,309.

The sharpest increases were seen in consumer-facing sectors. Bars and restaurants experienced a 41.7 percent rise in severe financial distress, travel and tourism firms rose by 39 percent, and general retailers by 17.8 percent.

Begbies said the findings reflect mounting pressure on labour-intensive industries following tax changes introduced in April, including higher employer national insurance contributions and an increase in the national minimum wage.

Ric Traynor, executive chairman of Begbies Traynor, said: “The sharp rise in critical distress underscores just how tough the economic environment is for UK businesses. Tens of thousands of firms are struggling to stay afloat.”

“With limited financial headroom to absorb rising costs, many businesses are now reaching a tipping point,” he added.

Julie Palmer, a partner at the firm, warned that smaller operators may not have the resources to survive if conditions do not improve. “While larger pub groups might be performing well by squeezing out extra efficiencies, many independent players won’t have the scale to withstand the pressures of this environment for another 12 months,” she said.

The warning comes as household budgets remain under pressure, leading to cautious consumer spending and subdued confidence. Palmer said this was having a clear knock-on effect for businesses with narrow margins, particularly in the service sector.

The British Beer and Pub Association recently predicted that 378 pubs will close this year across England, Wales and Scotland, resulting in more than 5,600 job losses.

Meanwhile, the broader economy is also showing signs of strain. Official figures last week showed GDP contracted by 0.1 percent in May, following a 0.3 percent drop in April, raising fresh concerns about the strength of the UK’s economic recovery.

“With no end in sight to the current economic malaise, I fear the financial burdens companies are enduring at present are simply too high for many not to avoid collapse,” said Palmer.