UK profit warnings higher than in 2008 crisis; oil rises as Middle East tensions escalate

Key events

Shares in oil companies are rising in early trading.

BP are the top riser on the FTSE 100 index in London, up 1.8%, with Shell up 1.4%.

In Paris, TotalEnergies are up 2%.

Oil climbs as tensions escalate in Middle East

The oil price has rallied this morning after a missile attack by Houthi rebels on a fuel tanker in the Red Sea on Friday.

The energy markets are also on edge after three US soldiers were killed in a drone attack on a US service base on the border of Jordan and Syria.

Brent crude jumped 1.5% to $84.80 per barrel, the highest since early November, before slipping back to $83.73 per barrel.

#OIL Brent Crude price broke out on friday with some follow through this morning.. – $88 be the obvious first target. Might give sasol some traction in the short term pic.twitter.com/wD0UJMjZc5

— Marco Olevano, CFA (@MarcoOlevano) January 29, 2024

The attack on on oil tanker operated by commodities group Trafigura has bolstered fears of supply disruption. Trafigura says it is assessing the security risks of further Red Sea voyages while the UK government has said Britain and its allies “reserve the right to respond appropriately”.

These developments have left investors fretting that the ongoing conflict between Israel and Hamas could escalate into a more significant regional and international crisis.

Stephen Innes, managing partner at SPI Asset Management, explains:

The Houthis’ continued attacks on ships in the Red Sea, including a tanker carrying Russian fuel, have prompted ongoing U.S. airstrikes in Yemen. Iran’s actions risk inviting a more robust U.S. air campaign against its regional assets, highlighting the precariousness of the situation and the potential for further escalation.

Concerns about the risk of miscalculation are growing, as rational actors may unintentionally become entangled in an escalatory spiral. Given the inherent complexity of Middle East conflicts, achieving a stable outcome in the region appears unlikely at this stage, signalling the potential for continued instability with broad global repercussions where higher oil prices are the chief concern, especially in a severe supply disruption scenario, where maritime traffic in the Strait of Hormuz is chocked leading to significant rise in prices.

Introduction: Profit warnings from UK-listed companies exceed those issued in 2008

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

High interest rates and weakening confidence have been blamed for pushing more UK companies into issuing profit warnings.

New data from EY-Parthenon this morning show that over 18% of public firms issued warnings in 2023, which is a higher proportion than at the peak of the financial crisis in 2008

In total, 294 profit warnings were issued by businesses in 2023, which is a slight drop on the 305 in 2022 – highlighting how tough the last two years have been for companies.

Over a quarter of warnings (26%) in 2023 were attributed to delayed contracts or decisions, 19% were due to increased costs and a further 19% cited the impact of higher interest rates.

The survey showed that profit warnings blamed on rising costs fell through the year, but there was an increase in warnings blamed on corporate spending delays and higher borrowing costs.

During 2023, 39 listed companies issued their third or more consecutive profit warning in 12 months.

Jo Robinson, EY-Parthenon Partner, says:

“Pervasive uncertainty in 2023 created major challenges for businesses around earnings and forecasting, and this is reflected in the number of profit warnings issued last year. While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending.

Firms issuing profit warnings in 2023 included online shopping group THG, which blamed delivery disruption, contract delays and falling sales at one division, Kingfisher, the owner of B&Q and Screwfix, and drinks giant Diageo, while shoemaker Dr Martens racked up four profit warnings in the year.

And looking ahead, Robinson adds:

“In 2024, businesses will hope for a quicker-than-expected fall in inflation and interest rates, but many moving parts need to slot into place before we can be sure of an economic ‘soft landing’. We expect to see increasing disparity between businesses that are positioned to capitalise on still limited growth and those that are hampered by the impact of recent earnings pressures or their access to and the cost of capital. It is shaping up to be an easier year for many, but not all UK companies.”