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UK profit warnings highest since 9/11


By : Allister Heath October 23, 2005

PROFIT warnings by UK-listed companies have hit their highest level since the aftermath of 9/11, confirming that Britain’s economic woes are intensifying, a report will warn on Monday.

The number of companies forced to issue profit warnings has surged by 42% over the past year, according to the accountant Ernst & Young. Last month saw the most warnings since November 2001, after the September terrorist attacks on the United States. The July to September 2005 period was the worst since the fourth quarter of 2002.

The bad news comes after a terrible run for the global stock markets, which closed down on Friday night for the third week in a row, partly on fears of higher inflation and a growing likelihood that the Federal Reserve Bank will hike US interest rates by more than previously thought.

The FTSE 100 index suffered a fall of 2.5% over the week, closing at 5142.1 on Friday night. The FTSE World Index is now down 5.1% from its peak three weeks ago.

Paul Niven, head of strategy at Foreign and Colonial, said: “Equity markets globally have been de-rated this year – meaning that price rises have not kept pace with earnings increases. We are now at the tipping point where the market realises that 2006 will see substantial earnings deceleration and, if the de-rating process continues, then prices may remain under pressure.”

There will be more bad news for the UK economy and consumers this week when Hometrack, the property website, publishes its house price index. It is set to show a further 0.1% decline over the past month, dashing hopes that the property market is rebounding.

City economists believe that the Bank of England’s monetary policy committee is now less likely to cut interest rates. Not a single respondent said the chances of a rate cut had gone up but 62% said they had diminished, a poll of analysts from research house Ideaglobal reveals. There is only a 25% chance of a November rate cut, the economists said. Fears that interest rates will not fall any more is an important reason why share prices have been performing so badly, say City analysts.