Low levels of profit warnings mask the outlook

Whilst this was three more than in the previous quarter it was two less than the same period in 2016, EY’s latest Profit Warnings report found,

This seemingly relatively stable picture in the region, however, masks falling expectations and significant changes beneath the surface that reflect the UK’s changing economic balance, it said.

Across the UK, quoted companies issued 45 warnings in Q2 2017, 40 per cent lower than the previous quarter, almost a third lower than Q2 2016 and well below the post-crisis second-quarter average of 58. According to the report this is the biggest single quarterly percentage drop in profit warnings since the second quarter of 2009.

A stronger than expected global economic backdrop has resulted in significantly lower warnings, the report said. A fifth of warnings cite internal operational problems, with external factors, such as exchange rates and price pressures, slipping down the list.

Hunter Kelly, EY’s head of restructuring for Yorkshire and the North East, said: “A low level of profit warnings should not lead to complacency. The reality is that corporate earnings forecasts have reduced and combined with the economy’s relative outperformance compared to expectations this has enabled more companies to meet their forecasts. It is possible that compared to expectations profit warnings may not rise dramatically without an economic downturn, given that companies seem to have come to terms with forecasting in the current economic climate.”

FTSE general retailers issued seven profit warnings in the second quarter of 2017, four more than last quarter and equal to 2016’s five-year second quarter high due to the impact of inflation on consumers’ spending power and weakened consumer confidence.

Profit warnings from the FTSE construction and materials sector hit a two-year high six months ago. Since then three further companies have warned, with a fifth of the sector warning in the year-to-date.