The impact of public sector cuts has hit IT firms hard with thousands of firms showing signs of financial distress encountering critical problems in the last couple of months of last year.
According to figures from Begbies Traynor just shy of 8,000 IT firms in Q4 are now on its red flag alert report which was a 27% increase on Q3 last year and 9% year-on-year.
By the close of the year 147,836 UK companies, including IT along with construction and business services, were facing significant or critical financial problems.
Nick Hood, partner at Begbies Traynor, said the public sector cuts were hitting a sector that had already been destabilised by the recession and more cuts were coming at the end of the fiscal year in April.
"Many of these companies are small and under-capitalised, often dependent on only one major client, making the task of raising working capital especially difficult in these days when funders are more risk averse than before the global recession," he said.
"IT businesses have historically been insulated by public sector spending and fixed term contracts. Given today's public spending pressures these contracts are now coming to an end and being renegotiated," he added "2011 looks like being a very difficult year for the IT sector."