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British firms’ profits rose to a record high in 2017 as a buoyant world economy boosted the UK’s multinational firms, according to data to be published today.

Firms reported £153.8bn in profits last year, according to analysis by the Share Centre of annual results published in the first quarter from half of the top 350 companies. That beat the previous record, reached in 2011, by 0.2 per cent.

UK PLC revenues also rose significantly, climbing 20.8 per cent to a three-year high of £1.33 trillion, just shy of the all-time peak hit in 2012.

Helal Miah, investment analyst at The Share Centre said: “The global economy is on a tear right now, with synchronised expansion in most of world’s key regions.

“Strong economic expansion around the world, coupled with positive exchange rate effects, and more efficient cost-bases proved a powerful shot in the arm for multinationals.”

However, domestic weakness may weigh on profits going forwards, with business output falling below the long-term trend in April, according to an index compiled by BDO. Their findings come after first-quarter GDP growth came in at only 0.1 per cent, below economists’ expectations.

Yet BDO’s optimism index, based on the latest findings from surveys by the Bank of England, IHS Markit, and the Confederation of British Industry, remains above the long-term average, suggesting firms expect conditions to improve. A separate measure from the Institute of Chartered Accountants will today show confidence from UK firms turning positive to reach its highest level in two years.

FTSE 100 firms, which are less exposed to the UK economy, enjoyed the bulk of gains over the course of 2017, improving profits by 176 per cent, while mid-cap firms still saw surging profits rise by 39 per cent.

Almost nine in 10 firms increased sales, while margins expanded for the UK’s giant mining and oil sector as commodity prices rose.

The uplift in global economic growth which surprised economists has helped company profits around the world, with the MSCI all country world index gaining more than 20 per cent over the course of 2017.

British companies’ earnings have had an extra boost from weakness in sterling in the aftermath of the EU referendum in June 2016. Some 70 per cent of the firms’ revenues were reported in dollars or euros, making them more valuable in sterling terms.

The banking sector saw profits triple in spite of a fall in revenues, as firms like Barclays and HSBC started to escape the costs of massive fines imposed since the financial crisis. Royal Bank of Scotland also returned to profit for the period, although that tailwind will likely diminish when an expected multi-billion-dollar fine from US authorities is agreed.

The pound has risen in value since hitting lows in 2017 against the dollar and the euro, adding a headwind for British firms, although diverging monetary policy could weigh down sterling in the second half of the year, sustaining headline profits.

Source: City A.M.

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