British companies haven’t had a chance to catch their breath since the COVID-19 pandemic. From business closures to slow demand and high costs, several factors have continued to weigh on them.
The result?
Nearly 20% of U.K.-listed companies have issued profit warnings in the past 12 months, according to a new report released Monday by EY-Parthenon, the consulting arm of Big Four firm Ernst & Young.
That’s marginally higher than the figure recorded at the peak of the Global Financial Crisis in 2008 at 18%.
Companies typically issue profit warnings when they expect their results to fall short of market estimates.
The issue seems especially dire given that the number of companies listing in the U.K. has fallen by 6%, while companies issuing warnings about their profits have ticked up.
“Macroeconomic pressures, while less intense, have not relented in 2024, and the full impact of interest rate increases is yet to be felt by many businesses,” said Jo Robinson, a partner at EY-Parthenon.
She gave the example of luxury goods, which have generally shown resilience amid periods of economic volatility but lately have seen demand fall through the cracks.
It’s true—some of the world’s most prominent luxury players, whether France’s LVMH or Britain’s Burberry, have been hurt by slowed consumer spending impacting their sales. Other companies like Gucci owner Kering have also issued two profit warnings in two months, underscoring the sluggish state of business in contrast to the pandemic years.
Other homegrown retailers such as The Body Shop and Ted Baker have also folded in recent months. Wilko, the discount chain, was another high-profile victim of the same trend, resulting in 12,000 job losses.
The report reflects these trends, as the highest proportion of companies issuing warnings belong to the personal and leisure goods categories. Their reasons ranged from supply-chain snarls to canceled contracts and higher financing costs.
Smaller companies have been the worst hit as costs have trended upward. In January, a government report found that the number of bankrupt businesses hit a 30-year high in England and Wales last year, surpassing 25,000.
The only other sector that struggled more financially was industry-support services, EY-Parthenon noted, which includes recruitment agencies and industrial supply providers.
While the odds might be stacked against U.K. companies now, there are still things to look forward to as the worst might be behind us. Inflation has been cooling over the past few months, and interest rates are widely expected to be slashed this summer, offering respite to businesses and consumers alike. The U.K. consumer sentiment is also beginning to turn, slowly but surely.
“Although this looks like an economically easier year on paper, companies still need to be scenario planning as the macroeconomic pressures we have seen over recent years are far from over,” Robinson said.
