Policy and Global Upheaval Trigger Record Proportion of UK Profit Warnings
New analysis from EY-Parthenon reveals that policy changes and geopolitical uncertainty have become the dominant factors behind profit warnings issued by UK-listed companies. The consultancy's latest report shows these concerns were cited as a leading factor for 42% of UK-based businesses that downgraded their annual profit outlook during 2025.
Unprecedented Impact of Policy and Geopolitical Factors
This represents a dramatic increase from just 12% of companies citing these factors during 2024, marking the highest annual proportion recorded in more than twenty-five years of EY's analysis. The findings highlight how domestic policy shifts and international tensions are creating substantial headwinds for British businesses operating in an increasingly volatile environment.
More than a quarter of firms specifically pointed to regulatory and policy changes as primary reasons for their profit warnings, while 15% of warnings were directly linked to US tariffs. President Donald Trump's tariffs on US imports have disrupted supply chains for numerous businesses, with certain sectors like chemicals facing additional pressure from products in oversupplied Asian and Middle Eastern markets being diverted into Europe.
Cost Pressures and Specific Policy Impacts
Cost pressures emerged as another significant driver of profit warnings throughout last year. Labour-intensive businesses proved particularly vulnerable to the rise in national insurance contributions and increases to the minimum wage, which squeezed margins and reduced profitability across multiple sectors.
Other companies specifically cited UK policies including the Building Safety Act and the financial regulator's motor finance compensation scheme as factors likely to depress their earnings. These regulatory interventions, while designed to address specific issues, have created additional financial burdens and operational challenges for affected firms.
Contrasting Trends in Warning Numbers
Despite the record proportion of warnings attributed to policy and geopolitical factors, 2025 actually saw the lowest total number of profit warnings since 2021, with just 240 issued throughout the year. A profit warning occurs when a publicly listed company informs investors that its full-year profits will fall below previous expectations due to various factors affecting anticipated earnings.
The other primary driver behind companies downgrading their earnings expectations was contract and order cancellations or delays, which featured in approximately one-third of all profit warnings. Business-to-business sectors including software, industrial services, and recruitment were hit hardest by uncertainty affecting sales pipelines, while consumer-facing sectors increasingly cited changing spending behaviour among their customer bases.
Sector-Specific Vulnerabilities
Retail proved particularly susceptible to these pressures, with the report finding that more than a third of all FTSE-listed retailers, including major supermarkets, issued a profit warning during 2025. This underscores how changing consumer behaviour and economic uncertainty are creating challenges even for established retail giants.
Jo Robinson, EY-Parthenon's financial restructuring leader for the UK and Ireland, commented on the findings: "Our latest data shows that the pace of UK profit warnings has slowed, but this feels more like an uneasy pause than a turning point. Many firms continue to face a challenging and uncertain backdrop, with a record level of warnings referencing the knock-on effects of policy and geopolitical upheaval, including tariff-related impacts, autumn budget uncertainty, and employer national insurance contributions changes coming into effect."
Robinson added: "Much now hinges on what comes next: a bullish recovery where stability and falling interest rates boost confidence, or something more downbeat marked by slow growth and heightened volatility. With 2026 now well under way, these two contrasting narratives are finely balanced."
The analysis suggests that while the overall frequency of profit warnings has decreased, the underlying causes have shifted significantly toward policy-related and geopolitical factors. This creates a complex landscape for UK businesses navigating both domestic regulatory changes and international trade tensions as they attempt to maintain profitability in uncertain economic conditions.
