E&Y naysayers say "we're all doomed"

Chris Wheal

Jan 24th 2010

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Ernst & Young (E&Y) says companies issued just 282 profit warnings during 2009, 37% fewer than 2008 and the lowest annual total since 2003. There were 50 profit warnings from quoted UK companies during the last quarter of 2009, compared to 126 in 2008, a year-on-year fall of 60%.

But Andrew Wollaston, restructuring partner at Ernst & Young says: "Rapid recovery costs, and 2010 is when we start paying. Brace yourselves for a bumpy recovery." Talk about snatching defeat from the jaws of victory. The bean counter could at least try to be a bit more positive.

"Given the depth of the slump, recovery has certainly come quicker than we might have anticipated. "This rapid economic recuperation, along with previously depressed earnings forecasts, is helping companies beat expectations and keep profit warnings low," Wollaston says.

Bah Humbug!

But that is not enough to cheer up the grey-suited and ashen-faced accountants at E&Y. Wollaston admits this is "Good news for UK plc", but he warns: "This is not the end of the story."

Government and central bank intervention might have staved off the risk of depression and turned the UK economy around, but such a rapid turnaround carries a high price, E&Y says.

The UK economy will return to growth shortly, but then budgetary constraints will halt the fiscal and monetary stimulus and the UK government withdraw money from the economy to help fill the hole in its budget.

And the private sector and consumers look too weak to fill this gap, E&Y claims. And exports are only recovering slowly. The end of quantitative easing (QE) will only add to the uncertainty and strain.

Dangerous talk

This is all very well but we talked ourselves into a recession with all the negative press coverage and the depressing sounding voice of the BBC's Robert Peston. We now have the choice of talking ourselves out of it or being like E&Y's miserable, gloomy, sour-faced accountants.

The evidence is all in E&Y's report. "The usual flurry of post-Christmas retail profit alerts have not arrived, with just eight warnings for all sectors in the first two weeks of 2010 versus 16 in the same period of 2009," it says. There really is no need to be so miserable.

So I say to the doom-mongers and naysayers at E&Y, cheer up, look on the bright side. The recession was not as bad as expected, finished faster and the recovery has begun.