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EY Finds Coronavirus Cited in 90% of Recent U.K. Profit Warnings

EY Finds Coronavirus Cited in 90% of Recent U.K. Profit Warnings

(Bloomberg) --

Nine out of ten of U.K. companies which have issued profit warnings over the past two weeks have cited the coronavirus as a contributing factor, according to a report by the consultancy EY.

The findings, first published on Friday, with figures subsequently updated on Monday, showed that almost 90% of profit warnings issued between Feb. 24 and Mar. 9 referred to the outbreak. Since the start of the year, 16 companies have mentioned the virus in their profit warnings.

Supply chain disruptions and weaker consumer spending resulting from the spread of Covid-19 is adding to the pressure on a U.K. economy already on course for the slowest growth in over a decade. Among those hardest hit are those in the travel and leisure sector, followed by firms in construction and industrial engineering.

Many firms “have felt the impact on their ability to operate, including disruption to supply chains,” the report stated. The authors, including data analyst Kirsten Tompkins, expect the number of coronavirus-related profit warnings to increase “significantly” if the virus spreads further.

Targeted Measures

Yields on U.K. government bonds plunged on Monday, falling below 0% for two- and five-year notes, joining U.S. Treasuries and German bunds in offering negative rates as investors try to protect their portfolios and bet on further stimulus by policy makers.

Later this week, the government in Westminster will unveil its budget amid the most serious threat to the British economy since the financial crisis over a decade ago.

“For the budget on Wednesday, we expect the government to communicate on targeted crisis fighting measures -- public health, liquidity support to corporate, income support to household,” said Fabrice Montagne, Barclays chief U.K. economist, in a phone interview. “That’s the cleanest expression of what the government can do: step in and make for lost income or lost activity on a temporary basis.”

Many industries suffering the pain inflicted by Covid-19 were already ailing before the outbreak. British firms issued 313 profit warnings in 2019, with consumer discretionary businesses hit the hardest, according to an EY report published in January.

To contact the reporter on this story: Irene García Pérez in London at igarciaperez@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Bruce Douglas

©2020 Bloomberg L.P.