The profitability of private non-financial corporations (PNFCs) slipped in the last three months of 2017, driven largely by a drop in profits in the service sector.
The results from the latest Office for National Statistics (ONS) report show that the rate of return for non-financial companies in the UK fell to 12.5 per cent in quarter four, down from 12.7 per cent in the period of July to September.
Service companies took the biggest hit, with return rates falling nearly a full per cent between the third and fourth quarter last year. The service sector’s annual rate of return fell to 18.3 per cent, down from 18.8 per cent in 2016.
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Manufacturing companies had a stronger performance, with returns rising from 13.8 per cent in quarter three to 15.8 per cent in the final three months of the year. The results come just a day after the ONS announced that manufacturing output had fallen 0.2 per cent in February, with the biggest decline seen in the manufacture of machinery.
The rise in profits for manufacturing last year means that the sector’s profitability has reached its second-highest value to date. This comes as the latest IHS Markit survey found that manufacturers’ growth expectations are the highest in over two-and-a-half years.
“A possible reason for this could be increases in export sales, linked to the past sterling depreciation and improving global economic demand, which should improve profit margins,” said the ONS report.
Buoyed by a jump in US oil prices, UK continental shelf companies also saw profits increase in the fourth quarter, jumping 2.3 per cent from the previous three months.
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