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A record proportion of UK-listed companies blamed policy change and geopolitical uncertainty for profit warnings in the third quarter, as shifting trade tariffs, taxes and regulations put further strain on businesses.
In the three months to September, 47 per cent of the 64 companies that issued warnings cited policy change and geopolitical uncertainty as a leading factor. This was up sharply from 17 per cent a year earlier and the highest since records began more than 25 years ago, according to EY-Parthenon.
Nineteen per cent of companies also pointed to weaker consumer confidence, the highest share since the final quarter of 2022, when soaring energy costs and the cost of living crisis weighed on household budgets, the analysis showed.
Persistent uncertainty affecting businesses was “spreading to households”, said Jo Robinson, partner at EY-Parthenon, with companies continuing to adjust to “market shifts and external threats,” including cyber risks.
Since April, companies have been facing pressure from rising operating costs, including higher employer national insurance contributions, minimum wage increases and trade tariffs.
More policy changes are expected as chancellor Rachel Reeves faces the double challenge of boosting economic growth and fixing the public finances at the Budget on November 26.
The chancellor is widely expected to raise taxes to fill a fiscal hole that economists estimate at between £20bn and £30bn amid concerns over the impact of tax increases on consumer finances.
These challenges have combined with weak consumer confidence and spending. Per capita household consumption in the UK is still below its pre-Covid pandemic levels, the weakest performance in the G7 group of advanced economies.
UK consumer confidence is historically low, with elevated inflation, high interest rates, rising unemployment and concerns over rising taxes weighing on households’ morale.
The report, published on Monday, showed that the number of profit warnings was up from 59 in the previous quarter.
A third of those issued in the third quarter cited contract and order cancellations or delays, while 22 per cent referenced tariff-related impacts, including weaker demand and supply chain disruption.
Profit warnings were most common in software and IT services, with 10 warnings issued in the quarter, followed by the FTSE sectors of media and construction and materials, with six warnings each.
There were nine profit warnings among listed retailers, the highest number since the end of 2023. More than half of them cited weaker consumer confidence.
Christian Mole, EY-Parthenon partner and UK and Ireland head of hospitality and leisure, said companies in hospitality and retail were “heavily exposed” to increased business costs, including from higher wages, with some “struggling to absorb these increases”.
“Companies from across consumer-facing sectors are reporting more selective spending, delayed purchases and trading down to lower-cost options,” he added.
