UK’s Sluggish Trend Hits Companies’ Profits

Profit warnings have seen their biggest quarterly rise in nearly six years, as the sluggish domestic economy takes its toll on companies’ bottom lines. UK-listed businesses issued 75 profit warnings in the three months to the end of September, up from 45 in the second quarter, according to the accounting firm Ernst & Young.

Official figures this week are set to show the economy stuck in the slow lane, with experts forecasting just 0.3% growth in the third quarter, Yahoo reported.

Many companies that missed their profit targets were in the retail, support services and travel sectors, which rely on spending by British consumers and businesses. Exporters and multinationals generally fared better, said EY.

“Summer brought more mixed fortunes for UK plc, with the contrast between accelerating overseas markets and the slowing UK economy increasing,” said Alan Hudson, EY’s head of restructuring. “Many businesses besieged by pricing pressures before Brexit are also now feeling the brunt of rising domestic uncertainty and rising costs.”

Growth has slowed this year as rising inflation resulting from a weaker pound has combined with poor wage growth to squeeze household spending. Last week, retail sales figures showed an unexpected drop in September.

A quarter of the profit warnings were blamed on cost and pricing pressures as the weaker pound drove up the cost of imports.

This week’s new numbers from the Office for National Statistics are expected to show economic growth in the three months to the end of September at the same rate as the previous two quarters.

The economy is “experiencing an unusually consistent pace of expansion”, said Martin Beck of the consultancy Oxford Economics. “However, that consistency implies continued sluggishness.”

The expected annual growth rate of 1.4% would be the lowest since mid-2012 but is not expected to deter the Bank of England from raising interest rates next month.