Financial distress increases for Hospitality and Leisure as industry seeks further support

• In Q2 2026, there were 4,481 Hospitality and Leisure* firms in ‘critical’ financial distress, a 17.5% increase YoY
• Of the 22 sectors monitored, the highest annual increases in ‘critical’ financial distress were for ‘Leisure and cultural activities’ (+27.1%) and ‘Hotels and accommodation’ (+26.6%)
• ‘Bars and restaurants’ also saw a 10.9% YoY increase
• There were 40,298 Hospitality and Leisure* firms in ‘significant’ distress, a 0.02% decrease YoY
• Among the subsectors with the highest number of businesses in ‘significant’ financial distress were Licensed Restaurants (+1.3% YoY, Q2 2026 – 6,645), Public Houses and bars (-4.4% YoY, Q2 2026 – 5,438) and Unlicensed restaurants and cafes (-2/6% YoY, Q2 2026 – 5,236)
• There are at least** 7,600 jobs at high risk across ‘critical’ financial distressed companies who register employee count through Companies House, meaning the average size of business in the category is 5-6 employees
• Across the UK, the number of businesses in ‘critical’ financial distress saw a 9.0% year-on-year increase to 53,756, while the number in ‘significant’ financial distress increased 1.0% year-onyear to 674,030

The number of Hospitality and Leisure* businesses in ‘critical’ financial distress saw an annual increase above the national average in Q2 2026 compared to the same period in 2025 according to BTG’s latest Red Flag Alert.

The financial and real estate advisory group’s research, which has monitored the financial health of UK businesses for more than two decades, revealed there were 4,481 Hospitality and Leisure* firms in ‘critical’ financial distress, a 17.5% year-on-year increase.

According to analysis of the full Q2 2026 Red Flag Alert data, this increase sits above the UK average annual rise of 9.0% to 53,756, with consumer facing industries seeing some of the highest jumps in ‘critical’ financial distress.

Of the 22 sectors monitored by BTG’s research, ‘Leisure and cultural activities’ (+27.1%) and ‘Hotels and accommodation’ (+26.6%) within the Hospitality and Leisure category took first and second place for the highest annual increases in ‘critical’ financial distress. The remaining sector within the category, ‘Bars and restaurants’, registered a 10.9% YoY increase in ‘critical’ financial distress, also above the UK average increase.

This latest Red Flag Alert indicator of business distress sits against a backdrop of macroeconomic uncertainty and increased operational, employment, tax and supply chain costs. As businesses continue to acclimatise to these challenging market conditions, BTG’s data suggests that UK firms are struggling with their financial health as we enter the second half of 2026.

While support for parts of hospitality and leisure has come in the form of new government’s 20% business rates cut for pubs, clubs and live music venues, other subsectors such as hotels and restaurants have question whether support will come for their businesses as well.

There were 40,298 Hospitality and Leisure* firms in ‘significant’ financial distress, an annual decrease of 0.02% compared to Q2 2025.

The subsector with the highest number of businesses in ‘significant’ financial distress was Licensed Restaurants (+1.3% YoY, Q2 2026 – 6,645), with Public Houses and bars (-4.4% YoY, Q2 2026 – 5,438) and Unlicensed restaurants and cafes (-2/6% YoY, Q2 2026 – 5,236) taking third and fourth place.

Further analysis by BTG’s Red Flag Alert has revealed there are at least** 7,600 jobs at risk the 1,382 Hospitality and Leisure* businesses who report employee count through Companies House. As not all of the businesses report their employee numbers, this figure could be much higher.

Julie Palmer, Managing Partner at BTG, said:

“It is no surprise to see Hospitality and Leisure businesses at the sharp end of increasing financial distress. They have long been warning that the increasing costs, shrinking margins and waning demand have been a cocktail for trouble, and with no end in sight likely, we have seen many calling last orders for the final time.”

“With policies like National Insurance contribution and National Minimum Wage rises alongside recent announcements that zero hours contracts could be banned, it seems that the sector will remain at the sharp end of the challenging labour market. Unemployment, like with other high street and consumer sectors, is a double-edged sword for hospitality and leisure. For an industry so reliant on casual and younger workers, many businesses have had to cut back on positions and hiring when tightening their belts, which has wiped out the lower end of the job market in the sector. The tough job market, shrinking margins, waning demand and low confidence will only worsen if people have no incentive to go out to eat, drink and relax, and there cannot be much more room to make further job cuts and implement any more cost saving measures in response.”

“Policy decisions like the 20% business rates relief will help relieve some of the pressure in the short term, but it doesn’t account for all of the areas of hospitality and leisure, nor does it set a path for long term recovery. Leaders will be looking for more meaningful and future gazing support from the new government to turn the dial on high costs and low spending to allow margins to increase again. Like in any sector, there will be winners and losers and not everyone will be able to avoid distress or closure. However, those who can survive for long enough for conditions to brighten and support to come to fruition will be the operators who make it through.”

Adam Humphrey, Partner at BTG, said:

“While hospitality and leisure businesses may be left feeling like the glass is half empty, it isn’t all doom and gloom. When trading is under pressure and margins seem to be shrinking to nothing, the first signs of operational strain emerging should trigger action from leaders. This is the time where there are far more options open to businesses to make proactive changes, be it refinancing, fresh equity, lease restructuring, estate rationalisation, non-core disposals or exiting low-margin business lines.”

“On the ground, we are seeing the potential for rescue and recovery, with plenty of the larger players in the sector setting the example by taking early steps to avoid distress. For instance, we have seen pub chains looking to sell parts of their estate that aren’t performing, or hotel groups looking into sale and leaseback options to unlock capital and build more flexibility into their property strategy.”

“While the larger groups have the means to make these kinds of decision, smaller players and independent businesses may not think they have the same level of flexibility. It is true that distress has impacted the SME end of most sectors compared with the larger firms, but the principals still stand. The earlier you act, the more options you have, which stands you in better stead for not only recovering but building a platform for sustainable growth. Waiting for the market to change, policy to land or demand to miraculously pick up over night will soon see hospitality and leisure firms run out of runway, and it is much harder to avoid insolvency once the distress has cemented and the options available have disappeared.”

For more information on BTG’s financial and real estate advisory services, visit: www.btguk.com/services