Record profit warnings dent confidence

Corporate profit warnings shot up by almost a quarter in 2005 as businesses were squeezed by soaring energy costs and weak consumer demand.

Accountants Ernst and Young say firms were forced to make a total of 381 profit warnings last year, an increase of 23 per cent on 2004. Almost half the companies blamed 'sales short of forecasts', for disappointing their shareholders. More than a fifth cited rising costs.

News of the profits squeeze in UK Plc came as embattled manufacturers prepared to demand another cut in interest rates to drag them out of the doldrums.

The British Chambers of Commerce will warn in its quarterly survey later this week that although businesses were feeling a shade more optimistic by the end of last year, exports and employment are still under severe pressure. 'What we're seeing is a small improvement, from a low base,' said David Kern, the BCC's economic adviser. 'You could say that things in the economy are stabilising, but we would like the [Bank of England's] Monetary Policy Committee to consider another small cut in interest rates.'

The Bank left rates on hold at 4.5 per cent last week, having made a quarter-point cut in August to prop up ailing consumer confidence. Analysts believe the nine-member committee will make at least one more reduction later this year.

Kern said Gordon Brown's forecast of GDP growth of 2-2.5 per cent, was 'realistic, but this is still below trend'.

After a sharper than expected downturn dragged growth last year to below 2 per cent, Brown is hoping businesses will lead the recovery in 2006. Official figures showed last week that manufacturing output expanded by 0.4 per cent in December - the strongest performance for seven months - raising a glimmer of hope for the troubled sector.