UK company profit warnings surge as Iran war drives up costs
Profit warnings from London listed businesses reached the highest levels in nearly two years over the summer, as an energy shock brought on by the Iran war fuelled inflation.
Businesses issued 65 profit warnings during the period, up from 59 in the second quarter, according to the latest analysis from EY. It also marked the largest number of warnings since the fourth quarter of 2024, when 71 were issued.
Profit warnings are announcements to shareholders informing them that initial market forecasts on profit or earnings will not be met.
Over half of companies blamed the rise on geopolitical uncertainty, with 38 per cent citing the impact of the ongoing conflict in the Middle East.
Others pinned the rise on contract and order cancellation or delays, as well as weaker consumer confidence. Jo Robinson UK&I financial restructuring leader at EY said the warnings showed the “variety of structural changes and companies” firms are being forced to navigate.
“This is not a conventional economic cycle… since the pandemic, supply-side disruption including material and labour shortages, energy shocks, tariffs and wider geopolitical disruption has become far more significant,” he said.
“Companies are also facing existential questions about their business models, as consumer behaviour evolves and AI reshapes competitive positions and routes to market.”
Nearly 20 per cent of UK listed businesses have issued a profit warning in the last twelve months.
Housebuilders buckled
The construction and household goods sectors were identified as the London-listed firms with the highest number of warnings during the period, totalling eight.
This included six warnings from listed housebuilders, taking the total for the year to date to 14, surpassing the 10 issued by builders during the peak of the 2008 global financial crisis.
Vistry, Persimmon and Taylor Wimpey were among the builders who released new warnings, citing cost inflation, lower sales rates and muted first-time buyer demand.
Industrial support services, including Hays and Bunzl, as well as material firms also issued six profit warnings in the period.
“Housebuilding has become the epicentre of these cost and interest rate pressures. The sector will be hoping that confirmation of the Government’s renewed support for first-time buyers will improve reservations and transaction volumes, although key details including eligibility, local price caps, developer contributions and timing are all still to be confirmed,” said Claire Gambles, financial restructuring strategy partner at EY.
Policy change problems
Robinson added the relentless “pace of policy change” is also making capital allocation harder for businesses, as forecasts and investments can quickly become inaccurate.
He said: “With the Autumn Budget around the corner, profit warnings linked to policy change and uncertainty, once concentrated around fiscal events or elections, have become a regular feature of our data.
“In today’s fiscal and financing environment, where many earnings pressures are linked to external shocks or competitive and technological disruption, boards that act early instead of waiting for conditions to improve will retain more options.”