Prophet's Profits Warning
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It's not just tough on the streets, it's getting bearish in the boardroom, too.
Profit warnings issued by UK companies in 2007 reached a six year high, according to research from business monitor Ernst & Young (E&Y), who tipped us the wink in October.
And a sharp climb in caveats during the last quarter has created concern there's even worse to come in 2008. On all fronts.
E&Y's latest quarterly survey recorded a 12% increase in profit warnings from British businesses (compared with 2006), increasing the overall annual total to 384.
Not only was this the largest figure since 2001, the picture is darkening even further. Over the three months to December there were 107 company cautions, up 22% from the same period in 2006 and the highest quarterly reading since the fears of economic fallout from 9/11.
Crunched Credit
Credit crunch contagion has spread fast, as 20% of adverse updates were prompted by recent financial market turbulence.
Top of the recent list was ‘support services' with 22 warnings, followed by general retailers (12), media (10), software and computer services (9) and travel and leisure firms, 8.
Retail's final quarter cautions took last year's total to a record 47. Yet although Christmas trading wasn't the "complete disaster" some had expected, Ernst & Young forecast that squeezed disposable income could make 2008 even tougher.
As Christmas credit card bills soon start hitting the doormat, cash-starved consumers are likely to put up the spending shutters. High street corporate restructuring, as I have suggested recently, looks on the menu for the year ahead.
And retail won't be the only UK sector to feel the pinch in 2008 as the economy slows, according to E&Y, with any company dependent on "fluid" loan markets or the consumer continuing to struggle, not least with raising money as banks curtail their business lending.
Though we can't say that we weren't forewarned.
In their previous report, E&Y pondered presciently that although profit warnings had remained steady in the three months up to September 2007, this could be "the calm before the storm" of financial market stresses "feeding through into the real economy". Bang on the button!
But back to today...
This week's British Chambers of Commerce (BCC) quarterly survey is forecast to show that output, orders and expectations are all sharply down. More food for thought for the Bank of England's rate setters, who held off last week but who are generally expected to cut official loan costs next month.
Not that it's a no brainer.
That BCC report apparently sees firms' expectations of price rises at a record high. Which was confirmed by today's news that UK manufacturers increased the price of their goods last month at a annual 5% rate, the fastest since 1991, adding further to the Bank's rate policy quandary.
Stagflation (stagnant economy + inflation) is here.
To cut or not to cut. Who'd want to be a central banker?
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