Profit warnings among UK-listed companies have reached their highest level in nearly two years, highlighting mounting pressures on businesses ahead of Chancellor John Healey’s upcoming Budget on October 28. According to analysis by EY-Parthenon, quoted firms issued 65 profit warnings between July and September, up from 59 in the preceding quarter and the largest quarterly total since late 2024.
More than half of companies cited government policy changes and geopolitical uncertainty as key factors behind the deteriorating outlook, with the conflict in the Middle East contributing significantly to rising energy costs. These challenges come after Labour assumed power in July 2024 and introduced higher business taxes, including a notable increase in employers’ National Insurance contributions. The ongoing war, particularly involving Iran, has driven up fuel prices and inflation globally, further squeezing business margins.
The housebuilding sector has been particularly hard-hit. So far this year, 14 profit warnings have come from housebuilders, surpassing the peak of 10 warnings during the 2008 financial crisis. Rising mortgage rates and borrowing costs exacerbate difficulties in this sector, where supply chain disruptions and cost pressures are prominent. House prices nationally have remained largely stagnant, with a slight 0.1% decline over the past year, according to data from property platform Rightmove. However, the average asking price for newly listed homes increased by 1% to £371,015 in October. The rapid increase in mortgage rates—from 4.25% before the February Middle East conflict to 5.55% most recently—has raised monthly borrowing costs by roughly £250, limiting housing affordability and affecting market activity.
EY-Parthenon emphasized that while businesses have demonstrated resilience amid ongoing challenges, the accelerating pace of policy changes has made forecasting and investment decisions more difficult. The consultancy also highlighted that Mr. Healey’s fiscal headroom—the margin available to meet government financial rules—has narrowed significantly from £23.6 billion in March to £11.3 billion, increasing pressure to either raise taxes or cut spending. Should instability in strategic regions like the Strait of Hormuz persist beyond 2027, additional borrowing costs could reduce fiscal flexibility further by an estimated £18 billion.
In response, Healey is reportedly preparing several support measures aimed at mitigating cost pressures, particularly for small businesses. These include proposals to raise the business rates threshold for small firms from £12,000 to £18,000, which would reduce the tax burden on many high street retailers, cafes, pubs, and other small enterprises. The Chancellor has also signaled commitments to provide households and businesses with some relief amid rising costs, though he cautioned about the government’s limited capacity for intervention given rising borrowing costs.
Business groups and trade unions have underscored the strain on both companies and consumers. The Trades Union Congress noted that UK households have faced nearly £14,000 in additional expenses over the past five years due to increased costs across mortgages, lending, and utility bills. Meanwhile, business representatives continue to call for emergency support to address the inflationary effects linked to the Middle East conflict and broader economic uncertainties.
A government spokesperson highlighted ongoing efforts to create a more supportive business environment through initiatives including a £4.3 billion business rates relief package, the Small Business Plan, and actions to combat late payments. While acknowledging the global impact of Middle East tensions, officials expressed confidence in the UK’s economic resilience as the Autumn Budget approaches.