British businesses have not had a chance to breathe since the COVID-19 pandemic. From business closures to slow demand to high costs, several factors continued to weigh on them.
The result?
Almost 20% of UK-listed companies have issued profit warnings in the last 12 months, according to a new report published on Monday by EY-Parthenon, the advisory arm of Big Four firm Ernest & Young.
This is slightly higher than the 18% recorded at the height of the global financial crisis in 2008.
Companies typically issue profit warnings when they expect their results to fall short of those expectations Market assessments.
The problem seems particularly dire when you consider that the number of companies listed in the UK has fallen by 6%, while the number of companies issuing earnings warnings has increased.
“Macroeconomic pressures, while less intense, have not eased in 2024 and the full impact of interest rate hikes is yet to be felt for many companies,” said Jo Robinson, partner at EY-Parthenon.
She gave the example of luxury goods, which have generally proven resilient during periods of economic volatility that have also seen demand decline.
It’s true – some of the world’s most famous luxury companies France’s LVMH or Britain’s Burberry, were hurt by slowing consumer spending, which impacted their sales. Other companies such as Gucci owner Kering have also issued two profit warnings two monthswhich underlines the sluggish business situation in contrast to the pandemic years.
Other local retailers such as The Body Shop and Ted Baker have also gone bust in recent months. Wilko, the discount chain, was another well-known victim of the same trend, leading to this 12,000 job losses.
The report reflects these trends, as the largest share of companies issuing warnings fall into the personal and leisure goods categories. Their reasons ranged from disruptions in the supply chain to canceled contracts and higher financing costs.
Smaller businesses were hit hardest as costs tended to rise. In January, a government report found that the number of bankrupt companies in England and Wales last year reached its highest level in 30 years. over 25,000.
The only other industry that experienced greater financial difficulty was the provision of industry support services, which includes staffing agencies and industrial supplier providers, EY-Parthenon found.
Even though the odds are stacked against British businesses at the moment, there are still things to look forward to as the worst may be behind us. Inflation has cooled recently a few monthsand interest rates are generally expected will be cut this summer to provide breathing space for both businesses and consumers. The UK Consumer sentiment slowly but surely begins to change.
“While this looks like an easier year economically on paper, companies still need to do scenario planning as the macroeconomic pressures we have seen in recent years are far from over,” Robinson said.