Ernst & Young: UK Profit Warnings Hit Three Year High Despite Economic Recovery

The number of profit warnings in the UK in the first half of 2014 was the highest on record for three years as competition heats up within the economy, according to Ernst & Young.

The professional services firm counted 137 profit warnings from companies listed on the London Stock Exchange, a 9% increase on the previous year and the highest it's been since the first half of 2011.

Mothercare, Asos and luxury automaker Rolls Royce are just three major corporations who have issued profit warnings in 2014 - flying in the face of a reputedly ubiquitous economic recovery.

Figures from the Office for National Statistics (ONS) said UK GDP grew by 0.8% in the second quarter of 2014, the same pace as the previous three months, taking Britain's recovery past its pre-recession peak.

However, EY says that the rise in profit warnings comes on the back of an increase in competition, a strong pound and tightened margins.

"While the recovery has boosted demand, it hasn't eradicated the austerity mindset of businesses or consumers," says EYpartner Keith McGregor.

"Moreover, the low level of insolvencies means companies are competing in a packed and competitive market place, lowering the normal level of returns."

Consumer goods manufacturers felt the tightest squeeze in the first half of 2014 with the report stating that 16% of firms in this segment have issued profit warnings - a 7% rise on the period for last year.

The average number of profit warnings per quarter since 2009 is 65. In the first quarter of 2014 there were 74 warnings, and in the second quarter there were 63. Although there were slightly less than average warnings in Q2, it still represents a 4.4% year-on-year increase.