Strong profits provide a buffer

Could the high profitability of the UK business sector offer a ray of hope for the economy as the slowdown starts to bite?

This could be the message from the latest set of data which finds that the profitability of British companies outside the fragile financial sector hit a record high in the final three months of 2007. The net rate of return on capital employed for non-financial companies rose to 15.5 percent. As is the norm, profitability in services is much higher than for manufacturing firms with service companies’ net rate of return was 21 per cent contrasted with less than 9 per cent for manufacturing. The latest net rate of return for North Sea oil companies was 50 percent, reflecting booming oil and gas prices. Whilst rising oil prices have spiked up production cost throughout the supply chain, it has been like manna from heaven for the oil and gas producers.