UK Firms Issue Profit Warnings at Highest Rate in Nearly Two Years

Profit warnings issued by UK-listed companies have reached their highest level in almost two years, according to an analysis by accounting firm EY. In the third quarter, the number of warnings rose to 65, an increase from 59 in the previous quarter. This marks the highest figure since the end of 2024, a period that followed significant fiscal policy changes.

The surge in profit warnings is attributed to a combination of factors, including economic uncertainty and increasing operational costs for businesses. EY's report indicates that 35 percent of firms cited costs as a primary reason for their profit warnings.

However, the most significant driver identified was "policy change and geopolitical uncertainty," which was a factor in 54 percent of warnings—the highest proportion in EY's 25-year analysis.

Businesses are grappling with the fallout from global events, such as the impact of the Iran war on oil and gas prices, alongside domestic cost pressures. These include increases in employer national insurance contributions and steeper minimum wage hikes, which have raised the expense of hiring staff.

EY noted that while the UK economy has shown resilience, its momentum remains fragile. Growth is described as slow, uneven, and susceptible to disruption, with consumers and businesses facing sustained higher costs. The upcoming Budget is expected to introduce further uncertainty.

According to EY's predictions, the government's fiscal "headroom" of £24 billion could diminish to a £7 billion deficit if energy supply disruptions persist into the next year. This situation could limit the government's fiscal options and potentially lead to further challenges for businesses.

"Businesses have already absorbed substantial increases in employment, regulatory and investment costs," EY stated. "Further tax rises, policy changes or delays to public spending could place additional pressure on exposed sectors, whilst prolonged uncertainty risks delaying hiring, domestic or inbound investment and contract awards."

This trend follows warnings from Bank of England governor Andrew Bailey, who has indicated that UK businesses are already experiencing financial strain due to escalating costs. Senior UK economist Andrew Wishart of Berenberg has described the cumulative burden as making Britain a "high-cost island."