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

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

The report says rising prices for labour, materials and energy, as well as the withdrawal of government-backed Covid support schemes, are behind the increased pressure on businesses .

Bars and restaurants, general retailers and construction companies were the hardest hit, with annual increases of 70%, 48% and 36% respectively, according to the report.

“After emerging from the pandemic, many businesses hoped for an economic boom, but that simply collapsed as supply chain issues and the invasion of Ukraine took their toll raw material and energy costs,” said partner Julie Palmer. 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 faces a prolonged recession, with inflation expected to hit 13% by the end of the year.

Business bankruptcies in England and Wales also rose in the second quarter, according to official data released this week.