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Service companies hit highest level of profitability in a decade

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Service companies recorded the highest rate of return since Q3 2003 at 15.6 per cent, according to new figures from the Office for National Statistics. 

Manufacturing companies’ net rate of return was estimated at 12.1 per cent in Q2 2014, an increase of 0.5 percentage points higher on the previous quarter. However, the report notes that the sector is volatile in this regard.

The net rate of return of the UK’s private non-finance companies was 11.8 per cent in the second quarter of 2014, the higher end of the range experience during the last five years. It peaked in Q3 1997 at 14.1 per cent and was at its lowest level in Q2 2009 at 8.8 per cent. 

“Activity in the UK economy grew by 0.9 percentage points in Q2 2014, the highest quarterly rate in four years. In contrast, the net rate of return for UK private non-financial corporations remained broadly unchanged, at 11.8 per cent compared to 11.9 per cent in the previous quarter,” according to the release.

However, the net rate of return for continental shelf companies, a sector which is dominated by oil and gas extraction, has been steadily declining since 2011. This is due to the increase in extraction costs as resources become depleted.

The growth in business investment was 11 per cent, the largest since the 2009 downturn.

In Europe a measure of aggregated national profit share is used, which takes gross operating surplus plus mixed income divided by gross value added.

The UK aggregated profit share in 2013 was 41 per cent, down from 42 per cent in 2012. The UK aggregated profit share is comparable with that of France and with the exception of 1997 is consistently lower than Spain, Ireland and Germany.

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