Profit warnings hit highest level since 2008 crisis

PROFIT warnings spiked in the three months to June at their highest total since the peak of the financial crisis in 2008.

Such alerts occur when stock market-listed companies revise their expected profits downwards and can be an indicator of expectations of worsening times ahead.

The figures from accountancy firm EY show that one in ten of the warnings related to the uncertainty caused by the Brexit vote including fears over demand and a weaker pound.

Alan Hudson, EY’s head of restructuring for UK & Ireland, said: ‘It’s been a dizzying, unpredictable time since the EU referendum. The initial impact of this uncertainty appears to have pushed profit warnings to their highest second quarter total since 2008.

‘But ultimately it’s hard to separate the Brexit effect from the underlying issues that brought high levels of warnings in previous quarters.

‘Many UK companies still face sluggish, disrupted and competitive markets with Brexit adding further layers of challenge but also opportunity.’

The 66 warnings issued by the 1,325 listed companies surveyed by EY was nine more than the number registered in the same quarter in 2015.

Meanwhile, figures due out on Wednesday from the Office for National Statistics are set to indicate that the UK economy was doing well before the referendum vote.

The statistics are expected to show that UK output grew 0.5 per cent in the second quarter, a stronger rate of growth than the 0.4 per cent seen in the first quarter.

‘Gross Domestic Product growth is expected to have improved to 0.5 per cent in the second quarter and could even have reached 0.6 per cent.

‘While heightened uncertainty had been expected to take a toll on second-quarter growth, the bulk of the available evidence indicates that GDP growth was relatively resilient in April and May at least,’ said Howard Archer, chief UK economist at IHS Markit.

A key survey on business expectations released by IHS Markit on Friday suggested that the economy had been hit hard by the Brexit vote, but there is little hard data as yet.

Employers’ group the Confederation of British Industry will release figures on industrial trends and the retail sector for July this week.

Archer said: ‘We suspect that manufacturing activity suffered substantially in July from orders being cancelled or postponed due to heightened uncertainties or concerns over the economic outlook following the Brexit vote – with larger orders and contracts particularly vulnerable.’

He added that he also expected the CBI to say retail sales are slowing.

Nationwide is set to report this week that house prices are falling.

However, consultancy Capital Economics believes that the property market will be resilient in the longer term.