Decline in profit warnings 'is a false dawn'

The number of British companies issuing a profit warning fell for the first time since the start of last year, offering hope of a trough in the corporate downturn.

There were 100 warnings during the three months to June – a 26 per cent fall compared with the previous quarter. But Ernst & Young, the accountancy firm that carried out the research, warned that the survey could give businesses "false hope".

Alan Bloom, head of corporate restructuring at E&Y, said: "The number of warnings is still high. The slight decline may indicate it is too early in the financial year for some companies to be issuing warnings to correct ambitious forecasts." He said the first 18 days of July had brought 30 profits warnings which, if continued, would translate into 40 for the month and 120 in the current quarter.

Mr Bloom added that there was an "absolute dominance" of the software, electronics and ICT hardware sectors that made up more than a third of all warnings.

In contrast Ernst & Young said that, "despite overall predictions for economic performance, non-technology companies appear to have remained relatively unscathed from the world-wide slowdown".

The survey is unlikely to shift opinion on the Monetary Policy Committee, which is expected to keep rates on hold at 5.25 per cent this week and, according to many analysts, for the rest of the year. The latest figures have painted a picture of a manufacturing sector in recession against a backdrop of continuing global uncertainty, and further strength in the consumer economy.

A separate report today, by the labour market analysts Incomes Data Services, showed most pay deals running "well ahead" of inflation. The latest agreements were within a range of 2.5 and 4 per cent, compared with inflation of 2.4 per cent. This was led by the public sector with the Department of Trade and Industry awarding 5 per cent and universities agreeing 3.7 per cent.

Consumer confidence shows no signs of stalling. The Credit Card Research Group said payment card spending totaled £16.5bn in June – 19 per cent higher than a year earlier.

Meanwhile an economic index compiled for business advisers BDO Stoy Hayward showed GDP growth coming at 1.9 per cent this year – the lowest for nine years.