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Manufacturing slump dents UK profitability

The
Office
for National Statistics
says that overall UK companies’
profitability was dented more by slowing returns from an already problematic
manufacturing sector than by the poorer performance of services companies. The
net rate of return from manufacturing companies in Q3 2008 was 4.4%, a 0.2%
contraction on the second quarter of the year and a 2.9% drop on the same period
in 2007. The average net rate of return from manufacturing companies for the
whole of 2007 was 6.5%.

Worse seems certain to come as the ONS’s production data for the fourth
quarter of 2008 shows that manufacturing output decreased by 5.1% compared with
the third quarter of 2008. It reports that for that period the most significant
decreases were 9.4% in the basic metals and metal product industries, 7.7% in
the transport equipment industries and 5.8% in the paper, printing and
publishing industries. All but one of the 13 sub-sectors in the ONS’s definition
of the manufacturing sector saw a decrease in output in the last three months of
2008.

The net rate of return from the service sector in the third quarter last year
was 15.5%, slowing the same 0.2% on Q2 2008 as the manufacturing sector, and a
0.4% drop on the same period in 2007.

“Generally, service sector profitability remains higher than that of the
manufacturing sector, reflecting the more capital-intensive nature of the
manufacturing sector,” says the ONS.

Faring a lot better in general are UK continental shelf companies, (those
involved in the exploration for, and extraction of, oil and natural gas in the
UK). The net rate of return for those companies increased in the third quarter
of 2008 to 74.4%, a 3.7% increase on the second quarter of the year and a 35.9%
increase on the same time in 2007.

That said, these figures cannot be directly compared to those for the ONS’
reports on profitability of the UK manufacturing and services industries
“because of the nature of the capital assets they employ”, says the ONS.

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