UK service sector profitability drops to four-year low

Returns in the manufacturing sector continue to remain at their highest since records began as North Sea oil and gas companies slip

The service sector includes warehousing and truck transportation amongst other services (REUTERS)

Companies in Britain’s dominant services sector reported the weakest returns on capital in three-and-a-half years during the second quarter of 2017, while profitability in the smaller manufacturing sector held at a 22-year high.

The Office for National Statistics said that rates of return among services businesses dropped to the lowest since late 2013 at 16.5 per cent in the three months to June, down from 18.6 per cent in the first quarter of 2017.

“Services companies expanded their use of capital and experienced a fall in the level of profits. This occurred despite an increase in the volume of output in the services industries,” the ONS said.

Britain’s economy grew at the weakest rate since 2012 in the first six months of 2017, with consumer spending in particular hurt by a jump in inflation following last year’s Brexit vote.

Export-focused manufacturers, however, have benefited from a fall in the pound. Returns in the manufacturing sector held at 15.3 per cent, unchanged from the first quarter of 2017 and the highest since comparable records began in 1997.

Returns for North Sea oil and gas companies slipped to 3.2 per cent in the second quarter from 4.2 per cent, after averaging 2.4 per cent in 2016, the lowest since records began.

“This reflects falling oil and gas prices, which were only partly offset by increased quarter-on-quarter production,” the ONS said.

Overall profitability in businesses across the economy averaged 12.6 per cent, close to its long-run trend.

Reuters