British firms have been plagued by profit warnings and sliding output — and many aren’t hopeful for an imminent recovery

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January 28, 2025
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British businesses are expecting more price rises, further hiring cutbacks and continued output declines to weigh on profits in 2025, despite assurances from the government that it is aggressively pursuing growth-friendly policies.

Profit warnings from companies listed in the U.K. were rife last year, new data showed on Monday.

One in five U.K.-listed companies issued a profit warning in 2024, according to research from accounting giant EY’s consulting arm. It marked the highest proportion of London-listed firms issuing profit warnings in one year since the height of the Covid-19 pandemic in 2020 — and the third highest in 25 years.

Over the past quarter century, only 2020 and 2001, when the Sept. 11 terrorist attacks and the dotcom bubble weighed on markets, saw bigger percentages of FTSE-listed firms issuing profit warnings, EY-Parthenon said.

Last year, 274 profit warnings were issued, according to the report, with 71 issued in the fourth quarter. Contract and order delays or cancellations — cited in 34% of 2024’s profit warnings — were the biggest source of pressure on corporate profits, the data showed. Meanwhile, increasing costs were behind one in five of the profit warnings issued throughout the year, according to EY researchers.

Luxury car maker Aston Martin, fashion house Burberry and home builder Vistry were among the London-listed companies to issue profit warnings last year. But certain industries saw a particularly high influx of profit warnings in 2024, EY-Parthenon said on Monday. Thirty-eight percent of FTSE-listed retailers cut their profit guidance last year, while 75% of companies in the personal goods sector cautioned investors about their profit outlook.

Jo Robinson, EY-Parthenon Partner and UK&I turnaround and restructuring strategy leader, said in a news release on Monday that profit warnings linked to contract and spending delays hit record levels in 2024, as businesses held back from recruitment and investment.

She noted that while the pace of profit warnings had eased slightly in early 2025, more business stakeholders were “viewing insolvency processes as a real option in finding the best path forward.”

On Monday, Morgan Stanley downgraded its 2025 growth outlook for the U.K. from 1.3% to 0.9%, citing emerging labor market weakness and non-essential business spend cuts. “We see risks as tilted heavily to the downside,” the investment bank’s analysts said.

Slump in output

In separate data published Monday, the Confederation of British Industry (CBI) — which represents 170,000 U.K. firms — said the U.K.’s private sector was expecting “another significant fall” in output over the coming three months that could lead to more price increases and a decline in hiring.

“January’s Growth Indicator showed that the private sector expects the downturn in activity to continue through the first quarter of 2025, extending a period of weakness that began in mid-2022,” the CBI said in its report. “Anecdote tells us that the mood among businesses is cautious, with sentiment having dipped in the aftermath of the Budget.”

The CBI said businesses expect selling prices will rise in the first three months of 2025. Meanwhile, the organization’s monthly Services Sector Survey showed hiring intentions in the British services sector had weakened significantly.

The U.K. has come under economic pressure in recent months, with a flatlining economy and sticky inflation weighing on businesses. On the political front, concerns are lingering about the Labour government’s fiscal policies and plans to raise taxes by £40 billion ($50 billion) through a raft of new policies. These include a hike in employer National Insurance (NI) payments — a tax on earnings — that has prompted warnings from businesses that they will be less likely to take on new workers.

The CBI said that the rise in employer NI contributions had been one of the government announcements to “hit firms significantly.”

“[This] has resulted in businesses reviewing budgets at short notice and calibrating their response to the measures: for example, raising prices to pass on additional costs to clients, trimming investment plans and cutting headcount to reduce expenses,” the industry body said.

Persistent pessimism

Many business leaders, myself included, have been looking at the U.S. with envy as their economy is projected to grow this year, whilst we are seeing [minimal] growth.

Matt Collingwood

VIQU Group, managing director

“[The government] has belatedly woken up to the fact that they need to send a positive message on the outlook, but this looks to be a case of trying to shut the gate after the horse has bolted, and requires actions rather than words, though the budget position does not give them much room for manoeuvre,” he said in emailed comments.

“For the time being, it is difficult to see where some genuinely good news for the U.K. economy is going to come from, though gradual Bank of England rate cuts should provide some support.”

Low business confidence is another factor that will hit hiring in 2025, according to Matt Collingwood, managing director of British recruitment firm VIQU Group.

“In our conversations with clients across the U.K., many organizations are not looking to hire, and may even reduce their headcount,” he said via email. “Many business leaders, myself included, have been looking at the U.S. with envy as their economy is projected to grow this year, whilst we are seeing [minimal] growth.”

Michael Queenan, CEO and co-founder of British tech data firm Nephos Technologies, told CNBC he viewed the government’s budget as a “massacre for businesses.”

“With higher taxes, raised National Insurance contributions and more employment directives to comply with, is it surprising that business leaders may be feeling pessimistic about the year ahead?” he said in an email.

Meanwhile, Rick Smith, founder and managing director of U.K. business consultancy Forbes Burton, said new government policies “look set to pile the misery on for many companies that are already struggling to stay afloat.”

“I’m confident of a strong 2025, but unfortunately, that doesn’t bode well for U.K. businesses as a whole,” he said. “Because we deal in company liquidations, we’ve seen a large increase in work over the last few years, and we fully expect to see an even bigger surge in closures to tackle this year.”