The latest EY profit warnings monitor reveals a significant decline in profit warnings among UK-listed firms, dropping to 49 in the second quarter – a 26% decrease from last year and the lowest since Q2 2021.
The decline signals a potential economic recovery, bolstered by falling inflation and strong wage growth, which have helped revive consumer spending.
Jo Robinson, a partner at EY, commented, “We can expect the economy to continue to recover, but slowly and unevenly.” Despite this optimism, rising cost pressures and contract issues remain concerns, with the industrial support services sector being particularly affected.
The past few years have been challenging, with businesses facing high inflation, sluggish demand, and elevated interest rates.
Nearly 20% of listed companies have issued profit warnings in the last year, a figure higher than the post-2008 financial crisis period.
“We can expect the economy to continue to recover, but slowly and unevenly,” Jo Robinson, a partner at EY said.
Worryingly, cost pressures rose as a factor explaining profit warnings, rising for the first time in over a year to account for 27 per cent of all warnings. Contract issues were cited in 29 per cent of profit warnings.
Firms in the so-called ‘Industrial Support Services’ – which includes business service providers, industrial suppliers and recruitment firms – fared the worst, accounting for a fifth of all profit warnings in the period.
Dan Hurd, partner in turnaround and restructuring strategy, said the sector is “heavily reliant” on business and public sector spending and is therefore “particularly vulnerable to economic fluctuations”.
Although the survey suggests that the range of headwinds facing businesses might be starting to ease, the past couple of years have still been a torrid time.
Firms have battled a combination of soaring inflation, sluggish demand and higher interest rates. Nearly 20 per cent of all listed companies have issued a profit warning in the past year, higher than in the year following the 2008 financial crisis.
Robinson said that firms still face a big dose of uncertainty due to an “unprecedented roll-call of global elections and geopolitical risks”, which could exert further pressure on spending.
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