Sluggish progress: Reeves at the Davos forum in Switzerland. As the UK economy suffered from slow growth in 2H24, businesses, in particular, have become critical of the Chancellor of the Exchequer’s more than US$50bil of tax rises. — Bloomberg
LONDON: Business activity has slumped at British firms and profit warnings have risen, according to two reports that say each trend is the worst it’s been since the pandemic.
The figures, published yesterday, were the latest in a slew of weak economic data that is troubling Labour ministers, who have promised to boost growth and invest more money into the UK’s public services.
Chancellor of the Exchequer Rachel Reeves needs output to pick up in order to drive higher tax revenues.
However, private sector activity fell again in the three months to January, the Confederation of British Industry’s (CBI) monthly growth indicator said, reaching its weakest level since February 2021 when lockdown rules were still in force.
Separately, a report by EY-Parthenon highlighted that one in five UK-listed companies issued a profit warning in 2024, a ratio that was only greater during the Covid pandemic and after the bursting of the dot-com bubble.
The UK economy suffered from slow growth in the second half of 2024 (2H24), as stubborn inflation and high interest rates weighed on companies and households.
Businesses in particular have criticised Reeves’ more than £40bil (US$50bil) of tax rises announced in her October budget.
Consumer confidence has also fallen to its lowest since 2023, and jobs are being slashed at a pace seen in the aftermath of the financial crisis.
Companies are being hit by “lacklustre demand and caution among consumers, while also continuing to adjust to measures announced in the budget,” said Alpesh Paleja, interim deputy chief economist at the CBI.
There were 274 profit warnings in total among listed companies in the United Kingdom, according to the EY-Parthenon report.
These were mostly driven by delays, or even cancellations, to contracts and orders, coupled with high costs.
The biggest number of profit warnings came from the industrial support services space, which includes providers of business services and recruitment companies, and the software and computer industry, with retailers following suit, according to the report.
Usually, greater earnings pressure would be followed by a rise in insolvencies.
“This cycle has been different,” said Jo Robinson, a partner at EY-Parthenon, where she leads the United Kingdom and Ireland turnaround and restructuring strategy.
“The availability of cheap, long-term debt and pandemic support provided breathing space for both businesses and stakeholders to explore consensual solutions and new restructuring options.”
However, looking ahead, businesses could face further strain.
The 990 firms surveyed by the CBI expect activity to fall at a similar pace over the next three months to April, with plans to slash headcount and raise selling prices further above the long-run average.
“More companies are now reaching a tipping point as cumulative pressures build,” said EY-Parthenon’s Robinson.
“We don’t expect a huge uptick in insolvency levels in 2025, but we are now seeing more distress, and more stakeholders viewing insolvency processes as a real option in finding the best path forward.” — Bloomberg
