Number of UK companies in financial distress up 24%

The number of UK companies in critical financial distress increased by 24% in the final quarter of 2011, fuelling fears that the British economy is approaching "rock bottom".

The worrying rise was revealed in a report by insolvency specialist Begbies Traynor, which also predicts the pressure will continue to rise in coming months as the economic reaches its lowest ebb.

It suggests that the worsening economy threatens to topple businesses struggling to survive and warns them to brace themselves for the toughest conditions since the recession struck.

Although a number of national store chains have collapsed since Christmas, the report warns that small regional retailers are the most vulnerable as they fight "a losing battle" with declining consumer spending and the likes of online giant Amazon.

Past Times, Peacocks, and La Senza have all called in administrators in recent weeks.

With a 56% increase in reports of distress from travel and tourism firms, it predicted that at least one household name travel company will fail in the first quarter of 2012.

It added that the London Olympics will only reduce domestic demand for traditional holidays and attractions such as the theatre.

Executive chairman Ric Traynor said: "Trends in the Red Flag Alert suggest we are likely to be approaching a crucial period for businesses large and small.

"Escalating levels of distress indicate we may be getting close to the bottom of the economic cycle where so-called zombie businesses, which are inherently insolvent but have benefited from extensive support measures such as HMRC's Time To Pay scheme, eventually fail."

The report revealed that the South East and London, which have fared better than other parts of the country in recent months, are also feeling the pain, with the number of companies reporting critical levels of distress up 33% and 19% respectively.

The Midlands was worst hit, with reports up 52%, while the East of England and the North West were also among the worst affected. Scotland is showing increased levels of distress as public sector cuts start to bite.