Blog: Olly WehringA profit warning warning

Olly Wehring | 16 July 2007

The state of the economy here in the UK is never far from the headlines at the moment, not least on these pages. Interest rates are rising as the Bank of England tries to slow the rate of borrowing and inflation, and this has led so far to a general sense of unease.

Although we still appear to be some way off a full-scale recession, as last experienced when the technology-led stock market crashed in 2001, few can doubt that there has been a slowdown in consumer spending in recent months. What remains hotly contested is quite how serious the ramifications of this slowdown are going to be.

A report out yesterday (15 July) by the business consultancy Ernst & Young will certainly add fuel to the fire. It reports that profit warnings issued by UK-listed firms are at their highest level since 2001.

In the first half of this year, 191 companies cut earnings forecasts, 13% more than in the same period a year ago. And it is a shortfall in sales that is the most often quoted reason for warnings.

Worst affected are software firms. However, the retail sector is also a victim, and one suspects that the continuing poor weather will begin to take its toll on the on-trade as well as summer trading figures pour in.

“The combination of higher interest rates, rising mortgage payments and household bills has left consumers with the smallest proportion of discretionary income for five years," said Andrew Wollaston, also a partner at Ernst & Young. "The decline in consumer spending is marked and has serious ramifications for retailers, especially those selling big-ticket or discretionary items.”


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