E&Y forecast warns of hard times to come

UK companies should brace themselves for “a bumpy recovery”, despite a fall in the number of profit warnings in the final quarter of 2009, says a report from accountants Ernst and Young.

While only 50 companies issued profit warnings in the fourth quarter, the lowest level in six years, this year is expected to be tough.

“Rapid recovery costs – and 2010 is when we start paying,” the firm said.

The report warned that with the removal of government stimulus measures, growth would have to come from elsewhere.

“The economy will need a boost from the private sector and exports to avoid stagnation or, worse, a second dip. However, the signs do not bode well,” it said.

“The survey shows most industries performing better than this time last year. But the reports have shown inconsistent progress, with recovery often moving three steps forward and one step back.”

Keith McGregor, restructuring partner at Ernst and Young said the previously high levels of profit warnings meant there were low market expectations.

“The low number of warnings we see in the rest of 2009 may be as much due to depressed expectations as a budding recovery. However, if expectations become buoyed by optimism too quickly and outstrip an economy that is recovering slowly and prone to relapse, then we may see a further negative imbalance between expectations and results, leading to a higher number of profit warnings later in the year.”

The report also pointed out that in 2010 budget constraints will mean the government pulls back from putting more money into the economy.

The Bank of England’s quantative easing scheme, in which assets are bought up to increase the amount of money flowing in the economy, is due to come to an end.

However figures due out tomorrow are expected to give the good news that Britain has exited recession.