UK manufacturing profitability reaches second-highest value to date

Manufacturing profitability has reached its second-highest value to date, according to the latest analysis of private non-financial corporations.

The results from the latest Office for National Statistics (ONS) report show that UK manufacturing companies had a particularly strong performance in the fourth quarter of 2017, with returns rising from 13.8 per cent in quarter three to 15.8 per cent in the final three months of the year.

“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. This comes as the latest IHS Markit survey found that manufacturers’ growth expectations are the highest in over two-and-a-half years.

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Service companies took a hit in profitability, however, 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. The drop in service profitability dragged down overall profits 0.2 per cent in the last quarter: 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.

Read more: British manufacturers and services both see waning reasons to be cheerful

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.