The number of firms stating that their performance would fall short of forecasts decreased last year, according to figures released in a report on UK investment and business performance by Ernst & Young (E&Y).

Acording to E&Y, 342 companies listed on the London Stock Exchange issued profit warnings, compared to 381 in 2005. In 2006, 75% of firms issuing profit warnings had a turnover of under £200m, from 70% in 2005 and 67% in 2004.

The report said that the number of profit warnings issued last year was close to the number issued in 2002 “when economic conditions were far more testing” and UK investment in business was under more pressure.

Many of the smaller companies issuing profit warnings are listed on London’s junior stock market – AIM – and by 2006 AIM-listed companies comprised 54% of all profit warnings.

Andrew Wollaston, E&Y corporate restructuring partner, said: “The high incidence of profit warnings from AIM companies, especially in their first year of flotation, has increased scrutiny on the junior market as a prime focus of UK investment opportunity.

“With AIM becoming increasingly popular, there will be more competition for UK investment and therefore a greater need for companies to adopt better forecasting and investor relations,” he concluded.