The number of profit warnings from UK firms was down in the final quarter of 2009, but according to Ernst & Young we're not out of the woods yet.
The accountancy firm reported that only 50 companies issued profit warnings in the fourth quarter of 2009, the lowest level in six years as the economy picked up quicker than expected. But it went on to warn of more trouble ahead as “"2010 is when we start paying [for the recovery]". As such investors should brace for a “bumpy recovery” as governments will be forced by “fiscal necessity” to reign in stimulus, cut spending and raise taxes.
“Given the depth of the slump, recovery has certainly come quicker than we might have anticipated,” said Andrew Wollaston, restructuring partner at Ernst & Young. “This rapid economic recuperation, along with previously depressed earnings forecasts, is helping companies beat expectations and keep profit warnings low.”
Companies most prone to missing their earnings goals in 2009 were in fixed-line telecommunications, oil equipment, services & distribution and banks. “The economy will need a boost from the private sector and exports to avoid stagnation or, worse, a second dip,” warned E&Y.