The number of companies warning on profits has jumped with economic pressures

 
Lynsey Barber
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Retailers are among the sectors sounding the alarm (Source: Getty)

The number of companies warning on profits has jumped, revealing a dramatic split in their fortunes when it comes to exposure to price pressures.

UK-listed firms issued 75 profit warnings in the third quarter, up on 45 the previous quarter and the biggest rise in nearly six years, according to fresh figures from EY.

Of FTSE firms, support services and general retailers were found to be the sectors issuing the most warnings, followed by software and computer services and then travel and leisure industries.

The figures expose a growing divergence in the economy, between firms under pressure domestically and those growing abroad.

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Cost pressures were cited in a quarter of all warnings this year, compared to 18 per cent in 2016.

“Summer brought more mixed fortunes for UK plc with the contrast between accelerating overseas markets and the slowing UK economy increasing," said EY head of restructuring for UK and Ireland Alan Hudson.

"Many businesses besieged by pricing pressures before Brexit, are also now feeling the brunt of rising domestic uncertainty and rising costs. A rise in multiple warnings reflects the struggle of some companies caught on the wrong side of economic and digital trends to break free. Companies with a winning formula will continue to thrive, but that formula keeps changing and it’s going to get tougher to keep up.”

A third of FTSE retailers have issued a warning in the year to date, with home improvement retailers making up nearly half, signalling falling confidence and pressure on discretionary spending.

“Going into the Christmas period, the opportunities and stresses will exaggerate the gap between winners and losers and we expect to see further warnings, especially from those retailers who are struggling to get on the right side of major sector trends or who are struggling with costs," said EY head of retail transaction advisory services Jessica Clayton.

Read more: Retail sales rise but price rises cast shadow over "welcome" growth

Restaurants and bars as well as airlines are also under pressure with rising costs and already thin margins.

“The FTSE travel and leisure sector has continued to benefit from consumers’ tendency to prioritise spending on experiences," said Hudson.

"But, with incomes squeezed and more money now being diverted to essential spending, the pressure is on. Competition for the disposable consumer pound is heating up and the picture is looking more mixed."

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