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Companies told to prepare for reduced profits

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UK companies should avoid optimistic profit forecasts and prepare for profits to fall by 5% this year, according to Resolution Asset Management.

Peter Reid, UK chief investment officer at Resolution, warned that forecasts for profits remain too optimistic, and appear to ignore the potential imminence of a recession in the US.

Reid also pointed out that even aggressive interest rate cutting by the Bank of England would fail to correct problems in the UK’s economy.

He explained: “The consensus is for UK profits to grow 7-8% in 2008 but we don’t think this will be the case, especially given that profit margins are starting from a very high level already.

“In my view, profit expectations need to come down closer to flat year-on-year to reflect what will be a very difficult environment for firms over the next 18 months or so.”

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