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Retail slump drives UK services firms' first-quarter profitability to four-year low

Retail slump drives UK services firms' first-quarter profitability to four-year low
FILE PHOTO: Customers are seen dining at Mr Fish in north London May 22, 2012. REUTERS/Eddie Keogh   -   Copyright  Eddie Keogh(Reuters)
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LONDON (Reuters) – Average profitability for businesses in Britain’s dominant services sector fell to its lowest in more than four years in the first three months of 2018, dragged down by struggling retailers, official data showed on Wednesday.

Britain has seen a string of store closures and financial collapses this year, including well-known high-street chains such as department store House of Fraser and electronics retailer Maplin.

The ‘net rate of return’ for services companies fell to 17.2 percent in the January-March period from 18.4 percent in the fourth quarter, the lowest since late 2013, the Office for National Statistics (ONS) said.

An unusually harsh winter caused British economic growth to slow sharply in the first quarter, and the ONS highlighted a large number of profit warnings from retailers as well as the biggest quarterly fall in retail sales in a year.

Factories fared better. Although the ONS said the net rate of return for the manufacturing sector fell to 15.0 percent in the first quarter from 15.9 percent in the fourth quarter of 2017, this still marked the third-best reading since records started in 1997.

The net rate of return for all private non-financial companies increased for the first time in six quarters, to 12.6 percent from 12.5 percent in the fourth quarter, driven by the oil and gas sector.

Profitability in oil and gas exploration and extraction companies improved for a third quarter running, helped by growing global demand and the rising price of crude.

The British economy picked up a little in the second quarter, but households remained under financial strain. Wages barely kept pace with inflation, which has been fuelled by the pound’s decline since the 2016 vote to leave the European Union.

(Reporting by Andy Bruce; Editing by Gareth Jones)

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