Corporate distress across Europe increased during the second quarter of 2026, according to the latest Weil European Distress Index (WEDI).

This is as the modest improvement seen earlier in the year gave way to a more challenging economic backdrop marked by weaker growth, fragile confidence and renewed uncertainty in the energy market.

The latest data shows that distress rose across every market measured between February and May, reversing the easing recorded in the previous quarter and leaving overall distress above its long-run average.

Retail and consumer goods was the sector that recorded the largest increase in distress during the quarter and remains by far the most distressed sector measured by the WEDI. On a rolling basis, distress reached its highest level since the global financial crisis in the latest quarter.

Industrials remains the second most distressed sector, although distress remains lower than a year ago, while real estate stands as the fourth most distressed sector. The latest increase suggests that signs of stabilisation seen earlier in 2026 remain fragile.

According to Weil, the data points to a broad-based squeeze across profitability, liquidity, investment and valuation. Weak consumer confidence, softer discretionary spending and rising operating costs continue to weigh on the sector, while renewed pressure from energy and transport costs threatens to further erode margins.

Andrew Wilkinson, partner and head of Weil’s London restructuring practice, said: “European businesses entered 2026 expecting operating conditions to improve gradually. Instead, the outlook has become more uncertain. Distress is now rising across every market we track, profitability has emerged as the biggest source of pressure and the prospect of lower interest rates looks less certain than it did at the start of the year.

“One of the more striking features of the current environment is the disconnect between market sentiment and underlying company fundamentals. Equity markets have proved remarkably resilient and credit markets remain relatively stable, reflecting expectations that the disruption caused by the war in Iran will prove temporary and that policymakers will ultimately be able to support growth.”

In terms of countries, the UK remains the third most distressed market measured by the WEDI. Pressure is concentrated in investment, liquidity and profitability, while a softening labour market and persistent cost pressures continue to weigh on business confidence.

This follows a report this week that the real estate sector also recorded more company administrations than any other UK industry during the first six months of 2026, according to analysis by law firm Shakespeare Martineau.

The IMF recently reduced its UK growth forecast for 2026 from 1.3% to 0.8%, which is the largest downgrade among the markets covered by the index.

Additionally, the resignation of prime minister Sir Keir Starmer and subsequent change of government introduces further uncertainty, raising the risk that business confidence and investment activity remain subdued over the medium term.