UK business failures fall 6% but start-up appetite weakens

UK insolvency-related activity fell during the second quarter of 2026, but a parallel decline in company formations points to continuing caution among entrepreneurs and a mixed outlook for commercial lenders, suppliers and receivables-finance providers.

R3’s quarterly business health report, based on Creditsafe data, recorded 6,854 insolvency-related activities between April and June. That was 6% below the corresponding period of 2025 and 5% lower than in the first quarter of this year.

The improvement was accompanied by weaker business creation. A total of 184,873 new UK companies were registered during the quarter, representing declines of 6% year on year and 2% from the preceding three months.

The combination suggests that fewer existing companies entered formal distress processes, while uncertainty over demand, employment costs and cashflow continued to discourage some prospective business owners from launching new ventures.

Construction remained the largest source of insolvency-related activity, with 1,177 cases. Accommodation and food services recorded 935, followed by wholesale and retail with 885. Each of the three sectors registered a year-on-year reduction, but their continued prominence leaves lenders and trade creditors exposed to industries with tight margins and volatile operating cashflows.

Not every sector improved. Insolvency-related activity among financial and insurance businesses increased by 19% year on year to 194 cases. Real-estate cases rose by 16% during the first half compared with the same period of 2025.

Greater London recorded 62,853 company formations, followed by East Anglia with 21,353 and the North West with 18,875. Nevertheless, every UK region experienced a year-on-year decline. Northern Ireland recorded the steepest reduction at 15.7%, followed by Wales at 15.1% and the North East at 9%.

London also had the largest number of insolvency-related activities, at 1,461, ahead of the North West with 1,044 and East Anglia with 914.

For working-capital providers, the figures offer some reassurance that aggregate distress is easing, but they do not support a broad relaxation of credit controls. Sector and regional divergences remain significant, while subdued company formation could limit the flow of younger businesses seeking growth finance.

R3 president Sonia Jordan said businesses should continue to monitor cashflow and seek advice early where financial pressure is emerging.