Profit warnings from UK-listed companies reached their highest level in nearly two years. This rise is linked to increasing costs from the ongoing conflict in the Middle East. A report from EY-Parthenon showed that 65 firms issued warnings in the three months ending in September. This is up from 59 in the previous quarter. It is the largest number of warnings since the fourth quarter of 2024, when 71 were recorded.
Rising Costs and Geopolitical Uncertainty
The report noted that geopolitical uncertainty and policy changes were the main reasons for these warnings, making up 54% of the total. Specifically, 38% of the warnings were directly related to the impact of the Iran war. Additionally, 35% of companies pointed to rising costs as a major factor hurting their profits. Jo Robinson, UK&I financial restructuring leader at EY, said, "This is not a conventional economic cycle… since the pandemic, supply-side disruption including material and labour shortages, energy shocks, tariffs and wider geopolitical disruption has become far more significant."
The construction sector was hit hard, with housebuilders issuing six warnings. This brings the total for the year to 14, surpassing the 10 warnings recorded during the peak of the 2008 financial crisis. Companies like Vistry, Persimmon, and Taylor Wimpey cited cost inflation and lower sales rates as reasons for their warnings.
Upcoming Budget and Business Support
As the UK government gets ready for its autumn Budget on October 28, there are calls for support measures for businesses facing rising costs. Chancellor John Healey has indicated plans to cut business rates for small firms. He plans to raise the threshold from £12,000 to £18,000. However, he has also warned of limited resources to tackle the challenges from the conflict and rising borrowing costs.
The rise in profit warnings could lead to more volatility in the UK equity markets. This is especially true for sectors like construction and retail, which are already under pressure from rising costs. Investors will closely watch the government's upcoming budget announcement and any potential measures to ease the financial strain on businesses.
Based on reporting by: theguardian.com, cityam.com