The number of profit warnings issued by UK-listed companies so far in 2022 has jumped 44%, with the beleaguered retail and consumer sectors amongst those worst hit by spiralling inflation.

The latest EY-Parthenon Profit Warnings report found a record number of costs-driven warnings in the first quarter, as increased commodity and energy prices fuel inflation have hit listed companies’ bottom lines.

The report reveals that UK-listed companies issued 72 warnings in Q1 2022, the highest quarterly figure since the second quarter of 2020 at the start of the pandemic.

Some 43% of these warnings were driven by rising costs, well above the 2011-2021 average of 10% of profit warnings related to cost inputs.

The report found that warnings from consumer-facing sectors reached their highest level since the second quarter of 2020, with 36% of warnings from these sectors citing supply chain disruption and 69% blaming rising costs.

FTSE Retailers issued the most warnings in the first quarter of the year (nine in total), followed by personal care, drug and grocery Stores (six) and the FTSE industrial support services sector (seven).

EY found that over one-third of FTSE retailers (34%) have now issued a profits warning in the last 12 months, with supply chain disruption, staffing issues and increased costs hitting the sector.

The report said consumer sector profit warnings are set to remain at elevated levels, given the ability to pass costs on directly depends on the capacity of increasingly pressured consumers to absorb them.

Silvia Rindone, EY UK&I retail lead, commented: “Our data underlines the challenges ahead for UK retail. The sector’s problems so far have been largely on the supply – rather than demand – side.

“Companies will now be facing a combination of supply chain, cost, and demand headwinds, as the rise in the cost-of-living affects real incomes and creates a challenge for the sales growth that has helped drive the recovery so far.

“Retailers will also need to focus on operational resilience by creating clear inventory visibility and a strong cash culture to minimise costly write-offs and optimise working capital to ensure they have the capital necessary to focus on growth and transformation. Digital opportunities and consumer expectations will continue to grow, regardless of the economic backdrop.”

In the first quarter only 11% of warnings cited the impact of the war in Ukraine, with most referencing the impact of sanctions and withdrawal from Russian markets.

EY forecasted that supply chain challenges could be even tougher in 2022 than in 2021 as the war in Ukraine has helped tighten supplies in areas like metals and semiconductors, which has led to businesses again adjusting production and forecasts, as well as having to factor in increases in energy and transport costs.

In addition, the biggest emerging issue in profit warnings, according to EY’s data, is contract delays and cancellations, reflecting the increasing uncertainty around company investment decisions.

Alan Hudson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader added: “2022 was always going to be a difficult year for companies to navigate as inflationary pressures, which had been building throughout 2021, were already putting pressure on company margins and consumers’ real incomes.

“The war in Ukraine has contributed to greater supply-side pressures and raised questions about confidence and demand in 2022. We are now looking at a year with ongoing COVID-19 disruption alongside higher inflation, greater uncertainty, and faster monetary tightening than we expected just a few months ago.

“The post-pandemic recovery should continue in 2022 but will be slower than expected with greater downside risks. Volatility and uncertainty have become the standard backdrop to operations, and companies need to ask themselves when ‘crisis as usual’ becomes the norm for which they plan. Businesses will need to start thinking about how their operations and wider ecosystem will fare in sustained headwinds, and how they can reshape in response to long-term change.”

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