The number of profit warnings issued by listed firms dropped significantly in the second quarter, but the UK’s corporate landscape still bears the scars of a tough economic climate.
EY’s latest profit warnings monitor showed there were 49 profit warnings from UK-listed companies in the second quarter, down 26 per cent on last year and the lowest quarterly total since the second quarter of 2021.
The survey has raised hopes the broader business environment has decisively turned a corner, paving the way for an easier few months ahead.
In the UK, inflation has fallen to two per cent while wage growth has remained strong, helping consumer spending to recover from the doldrums. With interest rate cuts on the horizon, most economists expect the economic backdrop will continue improving.
“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.