British companies were the most profitable in almost 16 years in the second quarter, against a backdrop of wider economic recovery.
Profitability among firms outside the financial sector and North sea activities – measured by their net rate of return – was 11.6% between April and June. It was the highest since late 1998 according to the Office for National Statistics
The better financial picture for UK companies reflected broader trends in the second quarter, when the economy grew by 0.9% – the highest quarterly rate in four years.
Taking non-financial sector companies overall, profitability was 11.8% over the period, slightly down on a six-year high of 11.9% achieved in the first quarter.
“Overall non-financial corporate profitability was little changed in the second quarter from the six-year high seen in the first quarter as companies benefited from extended markedly improved economic activity,” said Howard Archer, chief UK economist at IHS Global Insight.
“Generally improved corporate profitability is supportive to employment. It may also encourage companies to lift pay, which is important for sustainable healthy consumer spending.”
The hope is that as the economy and employment continue to grow, workers will see a consistent rise in real pay after falling real pay for the best part of six years.
For those companies involved in the North Sea oil and gas industry, profitability in the second quarter was the lowest since records began in 1997, at 16.9%.
Net rate of return is calculated by expressing profits as a percentage of the capital used to generate them.
Profitability among both manufacturing and services sector companies improved in the second quarter, to 12.1% and 15.6% respectively.
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