The proportion of corporate profit warnings citing worsening credit conditions has hit the highest level since the financial crisis, according to new figures.
EY said that a third of the 76 businesses that had issued profit warnings in the past three months had mentioned tighter credit conditions, amid persistent inflation and rising interest rates.
That is the highest proportion seen by the long-running EY report since 2008 and is up from only a fifth of warnings citing this as a factor in the second quarter.
The housing market was an area of particular concern, with a fifth of warnings citing the slowdown in the sector. Nearly half of companies in the FTSE household goods and home construction sector have issued profit warnings in the past year, the highest level over a 12-month period since 2008.
EY said that the total number of profit warnings in the third quarter actually fell year-on-year for the first time since 2021, down from 86 in the same period last year. However, this was still 18 per cent higher than the quarterly average and compared with only 51 warnings in the third quarter of 2021.
Advertisement
Jo Robinson, a partner at EY-Parthenon, EY’s consulting division, said: “While it’s encouraging to see UK profit warnings fall for the first time in two years, the growth of credit-related warnings indicates that pressure on businesses is unlikely to ease for the foreseeable future. In fact, we’re seeing economic stresses extend up the value chain, spreading to mid-market companies.
“It’s clear from this data that the steepest rise in interest rates in 40 years continues to take its toll, with a high proportion of warnings due to an increasingly expensive borrowing environment. This poses a risk for companies that are due to refinance and we’re already seeing this affect sectors where credit is a key activity driver, such as in the housing market.”
