November 22, 2017 / 10:39 AM / a year ago

UK service sector's profitability drops to lowest since 2013

Fish traders move fish at a market in Newlyn, Britain August 10, 2017. Picture taken August 10, 2017. REUTERS/Neil Hall

LONDON (Reuters) - Companies in Britain’s dominant services sector reported the weakest returns on capital in three-and-a-half years during the second quarter of 2017, while profitability in the smaller manufacturing sector held at a 22-year high.

The Office for National Statistics said that rates of return among services businesses dropped to the lowest since late 2013 at 16.5 percent in the three months to June, down from 18.6 percent in the first quarter of 2017.

“Services companies expanded their use of capital and experienced a fall in the level of profits. This occurred despite an increase in the volume of output in the services industries,” the ONS said.

Britain’s economy grew at the weakest rate since 2012 in the first six months of 2017, with consumer spending in particular hurt by a jump in inflation following last year’s Brexit vote.

Export-focused manufacturers, however, have benefited from a fall in the pound. Returns in the manufacturing sector held at 15.3 percent, unchanged from the first quarter of 2017 and the highest since comparable records began in 1997.

Returns for North Sea oil and gas companies slipped to 3.2 percent in the second quarter from 4.2 percent, after averaging 2.4 percent in 2016, the lowest since records began.

“This reflects falling oil and gas prices, which were only partly offset by increased quarter-on-quarter production,” the ONS said.

Overall profitability in businesses across the economy averaged 12.6 percent, close to its long-run trend.

Reporting by David Milliken, editing by Andy Bruce

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