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Market Report: Serco warns profits for 2014 will be 10-20 per cent lower than forecasts of £277m

Fresh concern about the outsourcing sector swept the City yesterday as the outsourcing giant Serco issued a second profits warning in three months.

Serco and G4S have been under pressure since problems emerged with government contracts in 2012. Yesterday Serco warned operating profits in 2014 are likely to be between 10 and 20 per cent lower than City forecasts of £277m.

Issues, including the electronic tagging of prisoners scandal last year, have dogged the sector. Serco said restructuring charges of £10-15m will hit the balance sheet. David Greenall, an analyst at RBC Capital Markets, warned that G4S could be hit even harder. He said: "There may well be greater one-offs at G4S if the tagging contract is deemed to have a similar negative hit."

Serco tumbled 86.3p to 423.2p, to the bottom of the FTSE 250, and G4S slipped 9.2p to 237.7p on the blue chip table.

Emerging markets concerns continued to worry traders and the FTSE 100 edged back 5.83 points to 6,538.45. It is down 2.6 per cent so far this year. Emerging market woes also hit drinks business Diageo, which reported a slowdown in sales growth. Its shares were 90p weaker at 1,820p.

Shares in HSBC briefly spiked by 10 per cent yesterday after a "fat finger", or human error. HSBC shares rose as high as 688p but closed up 3.9p to 630.2p.

BSkyB was up 33.5p to 878p after beating half-year earnings forecasts.

A trading update that was in line with expectation helped United Utilities up 4.5p to 723.5p.

Mid-tier engineer Renishaw reported a 65 per cent fall in first-half profit but said it expects trade in the second half to pick up. After an interim dividend shares rose 76p to 1,875p.

Small-cap sausage maker Cranswick gobbled up 56p to 1,299p when it revealed sales for the past quarter rose 14 per cent.

AIM-listed video-sharing group Blinkx tumbled 32.2 per cent after a blog about the company circulated in the City. Despite a statement denying the assertions made, the shares lost 56.75p to 118.75p.

Egdon Resources jetted 2.75p to 29.5p after signing an opt-in agreement with Total for a shale gas licence in the East Midlands.