Profit warnings 'set to hit record'

THE number of companies issuing profits warnings is likely to surge to record levels by Christmas, according to City accountant Ernst & Young.

In the three months to the end of September, 135 profits warnings were issued by firms, an increase of 35% on the previous quarter.

But with little sign of an economic recovery and the full effect of the US terrorist attacks still to be calculated, Ernst & Young analysts warn that the final quarter could see the number of warnings rise to 150, the highest since the company began its survey three years ago.

In the third quarter, software and computer services companies accounted for one fifth of warnings.

According to the report, the bursting of the dotcom bubble is affecting a wider range of technology firms. 'Even the well-managed companies in the sector are now issuing warnings,' it says.

Another victim of the economic slowdown is the media sector. A dramatic fall in advertising spending has seen profits warnings leap to 17 in the three months to September, the highest on record. Advertising agencies accounted for almost half the warnings.

With technology and media industries concentrated in and around London, companies from the capital and the South-East accounted for 68% of all the profits warnings - far higher than the historic average.

The full effects of September 11 remain hard to judge, says the report. Between September 11 and 30, there were 10 profits warnings, all of which partly blamed the US attacks. Of these, four were in the insurance sector, which was faced with an immediate threat to business from the multibillion-pound claims. 'More have been issued since and yet more will come in the current quarter,' the report says.

In particular, the report warns that Britain's broking and banking sector could feel knock-on effects from the attacks, while the travel and hotel sector will produce more warnings as the slowdown in tourism takes its toll.