Number of profit warnings in region lowest since 2003

Twenty-three profit warnings were issued by listed companies in Yorkshire and the North East during 2010, the lowest number since 2003, according to research released by Ernst & Young.

Profit warnings in 2010 were 41 per cent down on 2009, but Hunter Kelly, Yorkshire restructuring partner at Ernst & Young, warned that 2011 could be a hard year for many companies.

The sectors that issued the most warnings in 2010 in Yorkshire were support services and mining, which both totalled four each.

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UK quoted companies issued just 196 profit warnings in 2010, compared with 282 warnings in 2009 and 449 in 2008.

Mr Kelly said: "A stronger-than-expected start to the recovery has provided many UK companies with the opportunity to leverage efficiency savings and exceed earnings expectations in the last 12 months.

"However, there are already signs that 2011 could be more testing for some parts of the UK economy. Market conditions in several service sectors are already tightening, even though the full impact of the Chancellor's austerity measures have yet to be felt. Substantial changes to levels and patterns of public sector spending make some long-term losers and short-term pain inevitable. We are starting to see this in sectors as diverse as care homes and construction."

Mr Kelly warned that companies serving the public sector needed to act rapidly to decide what the changing economic landscape would mean for them.

He said contract cancellations and a spending hiatus were likely to produce substantial reductions in demand for some.

Profit warnings from the FTSE general retailers sector remained relatively low in 2009 and for most of 2010, with 12 and 16 warnings respectively. However, by the final quarter of 2010, consumer confidence and spending power had begun to wane and retail profit warnings started to rise. There were six profit warnings from general retailers in the final quarter of 2010.

Mr Kelly added: "Unquestionably, the extreme weather in December had a negative effect for some and compounded the pressures on retailers. However, the strong differentiation between winners and losers this Christmas suggests that the snow, for the most part, simply exacerbated and amplified existing internal problems and structural trends in an increasingly tough and competitive market.

"Christmas was a taste of tougher times to come."

According to Ernst & Young, the momentum gathered by the recovery so far means that the UK is unlikely to suffer a second economic dip in 2011.

However, Ernst & Young warned that GDP growth could slow at the start of this year and a short period of mildly negative growth is possible, especially if problems in the eurozone spill over into credit markets.