Profit warnings from London-listed businesses reached their highest level in nearly two years over the summer, as an energy shock triggered by the Iran war stoked inflation and geopolitical uncertainty.
Companies issued 65 profit warnings during the period, up from 59 in the second quarter, according to the latest analysis from EY. This marked the greatest number of warnings since the fourth quarter of 2024, when 71 were recorded.
Geopolitical uncertainty and Middle East conflict cited
Profit warnings are announcements made to shareholders notifying them that initial market forecasts on profit or earnings will fall short of expectations.
More than half of companies attributed the increase to geopolitical uncertainty, with 38 per cent citing the impact of the continuing conflict in the Middle East. Others pointed to contract and order cancellations or delays, alongside weakening consumer confidence.
Structural changes and business model pressures
Jo Robinson, UK&I financial restructuring leader at EY, said the warnings illustrated the "variety of structural changes and companies" firms are being forced to navigate.
"This is not a conventional economic cycle... since the pandemic, supply-side disruption including material and labour shortages, energy shocks, tariffs and wider geopolitical disruption has become far more significant," she said.
"Companies are also facing existential questions about their business models, as consumer behaviour evolves and AI reshapes competitive positions and routes to market."
Housebuilding and industrial sectors hit hardest
Nearly 20 per cent of UK-listed businesses have issued a profit warning in the last twelve months.
The construction and household goods sectors were pinpointed as the London-listed companies issuing the highest number of warnings during the period, with eight in total. This included six warnings from listed housebuilders, bringing the year-to-date total to 14, exceeding the 10 issued by builders during the height of the 2008 global financial crisis.
Vistry, Persimmon and Taylor Wimpey were amongst the builders releasing fresh warnings, pointing to cost inflation, weaker sales rates and subdued first-time buyer demand. Industrial support services, including Hays and Bunzl, alongside materials companies, also issued six profit warnings during the period.
"Housebuilding has become the epicentre of these cost and interest rate pressures. The sector will be hoping that confirmation of the Government's renewed support for first-time buyers will improve reservations and transaction volumes, although key details including eligibility, local price caps, developer contributions and timing are all still to be confirmed," said Claire Gambles, financial restructuring strategy partner at EY.
Policy change and capital allocation challenges
Ms Robinson added the relentless "pace of policy change" is also making capital allocation harder for businesses, as forecasts and investments can quickly become inaccurate.
She said: "With the Autumn Budget around the corner, profit warnings linked to policy change and uncertainty, once concentrated around fiscal events or elections, have become a regular feature of our data."
"In today's fiscal and financing environment, where many earnings pressures are linked to external shocks or competitive and technological disruption, boards that act early instead of waiting for conditions to improve will retain more options."
