Market volatility and weak oil prices are two factors that have led to a “remarkably high” level of profit warnings among UK listed companies, says business consultancy EY.
There were 76 profit warnings in the first quarter of this year, which is almost the same as the same period last year (77). However, in the 12 months to the end of Q1 2016, 17.2% of UK quoted companies issued profit warnings, which is up from 16.5% of companies at the same point last year.
Nearly half the companies that issued a profit warning had already done so last year, compared to just over a third in the same period last year, EY found. The report said that, “companies are still finding it hard to adapt to unpredictable markets”.
The FTSE Support Services sector issued the most profit warnings and had the most warnings citing weak commodity prices, underlining how pressure is being passed down the supply chain.
General retailers have issued the highest Q1 total of profit warnings since 2011, with a fifth of companies warning across “the vital fourth and first quarters”. EY said the sector is still struggling to adjust to competitive and disruptive pressures.
The report also suggests that actions by bodies such as the European Central Bank may be having adverse effects. EY said that, “there are rising fears that the cure is worsening the disease”. For instance the Bank for International Settlements has expressed its concern that lower interest rates are in danger of making the situation worse, by entrenching “dependence on the very debt-fuelled growth model that lay at the root of the [financial] crisis”.
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