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#1 Jul 24, 2013
Hopes for economic recovery mount as number of profit warnings from UK companies at lowest level since 2011
Britain's tentative economic recovery has had a new shot in the arm with figures showing the number of profit warnings from UK companies has fallen to its lowest level since 2011.
The figures come ahead of official economic numbers this week expected to show a sharp upturn in growth.
In the three months to the end of June figures from EY – formerly known as Ernst & Young – show the number of stock-market quoted companies warning that profits would not meet previous expectations fell to 54. This was six fewer than the same time last year and 18 down on the same period in 2011.
In the first quarter of the year there were 72 profit warnings. The 25 per cent fall in the second quarter was the biggest drop since 2011.
‘The UK recovery certainly appears more entrenched and better placed to ride out the aftershocks that have triggered sobering second-half dips in economic activity in recent years,’ said Keith McGregor, EY’s head of restructuring for Europe, the Middle East and Africa.
‘That said, the economy still faces significant domestic challenges, especially from inflation. A stagnant eurozone and cooling emerging markets also look likely to place a speed limit on growth.’
Among the sectors with the highest number of profit warnings were software and computer services, travel and leisure, and media, each with five profit warnings.
In contrast, leading retailers issued just two warnings in the second quarter compared with five in the same time last year. EY notes that clothing companies were worst hit, with about a third of profit warnings from retailers coming from such firms in the past year.
‘Struggling retailers appear to share operating characteristics, rather than products. These include excess physical space, weak brands, low differentiation as well as the inability to compete with increasingly aggressive competitors on product and price,’ said Alan Hudson, EY’s head of restructuring for the UK and Ireland.
Meanwhile, on Thursday economic output figures for the second quarter of the year will be issued. GDP growth is expected to have doubled from 0.3 per cent to 0.6 per cent in the period, reckons economic forecasters IHS Global Insight.
IHS now believes GDP will grow by 1.1 per cent this year and 1.8 per cent in 2014.
‘The fact that the recent improvement has occurred across a wide range of sectors is particularly encouraging and reinforces hopes that the UK economy really is moving to a firmer footing,’ said IHS.
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