Great Britain

UK firms' profitability slumps to 10-year low as surveys point to further pain ahead

The profitability of UK companies has dropped to a 10-year low, according to official figures that came as surveys showed a fall in retail jobs, a surge in profit warnings, a slowdown in pay growth and a fragile outlook in the construction sector.

Private sector firms’ net rate of return dipped to 9.9 per cent in September down from 10.0 per cent three months earlier. This was the lowest since the aftermath of the global financial crisis in the final quarter of 2009 when it hit 9.5 per cent.

The fall was driven by a sharp fall in profits in the North Sea oil and gas, that slimmed to 1.3 per cent from 2.3 per cent as the prices of both fuels fell in the third quarter.

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However, the drop in profits was witnessed across business with services firms suffering a 0.4 points fall to 15.2 per cent and manufacturers down by a steeper 0.9 points to 11.1 per cent.

Earlier this week figures showed the number of firms issuing profits warnings hit a four-year high in the final quarter of last year, according to business advisers EY.

Quoted companies issued 78 warnings, taking the annual total to 313 — the highest since 2015. The share of companies warning in 2019 hit 17.8 per cent, just surpassing 2008’s figure at the peak of the financial crisis. A third of FTSE-listed retailers issued warnings in 2019.

The figures came as the retail industry said shops shed 57,000 jobs in 2019 as employment in the once-vibrant high street and shopping centre contracted for the fourth successive year.

The British Retail Consortium said the total number of retail employees fell by 1.8 per cent in the final three months of 2019 compared with a year earlier. Full time employment fell by 3.0 per cent and part-time by 1.2 per cent.

This was the 16th consecutive quarterly fall, which the BRC said was “proof” that the transformation of the retail industry was ongoing.

Helen Dickinson, the BRC’s chief executive said it was essential the government used its review of the business rates system for a reform of a tax that fall disproportionately heavily on retailers.

“It is worrying that the government is standing by while tens of thousands of jobs are being lost,” she said. “If the same was true in manufacturing or aviation, one can be sure that the government would act.”

The gloom was compounded by a report from a construction industry body showing that ongoing uncertainty over the UK’s trading relationship with the European Union had affected surveyors’ decisions to invest.

The poll of chartered surveyors by RICS found a quarter were likely to cut investment in fixed assets and third to cut back on workforce development and training. However, surveyors reported full order books, with a net balance of 39 per cent said they had increased their headcount over the past three months.

British employers offered their staff an average annual pay settlement of 2.2 per cent in the three months to December, down from 2.6 per cent in the three months to November, human resources consultancy XpertHR said.