UK small businesses on brink of collapse: Study

According to insolvency group Begbies Traynor, more than 100,000 UK companies with a combined £58 billion in debts, are in financial distress. Further, according to its Red Flag Alert report, around 50,000 companies would likely be hit by the government's cuts to be announced next week, the group said.

"We believe that there will be a prolonged period of growth in business distress, as SMEs feel the full impact of the gradual unwinding of government support measures combined with public sector spending cuts and deteriorating business and consumer confidence," Begbies said in the report.

According to the report, construction, IT, recruitment, advertising and business services are some sectors most vulnerable to the cuts.

Executive chairman Ric Traynor said, with confidence in the construction sector down to an 18-month low, recruitment activity at its slowest for almost a year and a strong increase in distress in the advertising sector, there was a growing risk that even if the wider UK avoided a double-dip recession, public-sector dependent industries face higher levels of financial distress.

Industries including retail, leisure and travel are also likely to experience slowdown in their recovery.

The so-called "zombie" companies that have survived the recession thanks largely on support of creditor banks, such as Lloyds or RBS, or private equity firms that do not wish to book a loss, may find the going tough from now on.