A growing number of UK businesses are at risk of going under, as costs spiral and Covid loan repayments come due, a report has found.

Construction and hospitality are the sectors struggling most, according to insolvency firm Begbies Traynor.

Loan repayment schedules should be extended to ease the pressure, it said.

The UK government said it had given businesses an “unprecedented package of support” and increased flexibility in paying back Covid loans.

In the first three months of this year there was a 19% rise in businesses in critical financial distress compared to the start of 2021, the report by Begbies Traynor said.

Julie Palmer, a partner at the insolvency and restructuring specialist firm, said without further action to help struggling businesses there would be a wave of business failures.

“It’s just a case of when the dam holding it back finally bursts,” she said.

Begbies Traynor, which publishes regular health checks on the state of British businesses, said its “Red Flag Alert” research reflected the strain two years of extraordinary financial pressures have had on thousands of companies. It said 1,891 firms now fell into the category of critical, suggesting their outlook is precarious.

Although Covid restrictions have been lifted, some firms are still feeling the impact of disruptions to supply chains and the price of energy and other inputs has risen sharply.

Firms are finding it hard to recruit staff in some sectors, and wage costs, including the minimum wage and National Insurance payments, have gone up.

With the cost of living rising, many UK households are looking for ways to save money, putting further pressure on businesses that rely on discretionary spending, like bars and restaurants.

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