Wednesday, October 04, 2006

Company profitability at a 40-year high

Company profitability in Britain has reached its highest level for 40 years, according to a report in the Financial Times today [subscription required]. That’s right. After nine years of Blairism, corporate wallets are fatter than they were even under Thatcher or Major. Or, as the paper puts it:

‘The business environment for capitalism [is] much better now than in the 1970s, 1980s and 1990s.’

Remember that, next time Labour and the Tories argue over which of them has the best pro-business credentials. New Labour wins hands down:

‘Official figures yesterday showed the net rate of return on capital was 14.7 per cent, the highest quarterly figure since quarterly records began in 1989 and higher than any single year since 1965 …

‘Service-sector companies made a record 20.1 per cent rate of return on capital, while manufacturers made only 6.1 per cent, the lowest rate since the economy-wide recession of 1991-92.’

But companies operating in the North Sea topped the charts, with returns of 38.7 per cent.

There are lots of reasons, of course. But as one City commentator openly puts it, keeping trade unions hog-tied while slashing business taxation are probably reasons one and two.

‘With profitability at a 40-year high, the obvious risk is it might soon bump down to earth, but [David] Miles [chief UK economist at Morgan Stanley] thinks there are good reasons for believing current levels are more sustainable …

‘ "There has been a huge fall in the power of organised labour, the number of strikes in the private sector has crashed, the rate of corporation tax is lower and the volatility of the economy has reduced …"’

Miles goes on to argue that profitability will remain above the long-term average for some time. He may very well be right.


<< Home

This page is powered by Blogger. Isn't yours?