The profitability of UK companies not involved in the financial sector surged to a record high in the second quarter of 2007, official data revealed yesterday, providing fresh evidence that the economy has been running at full steam.
Yet the consensus was that the rate of profit growth was not sustainable and it would likely mirror next year's anticipated weakening UK economy - although the survey suggested that the momentum of earlier this year has continued into the third quarter.
Analysts yesterday also said the data suggested that UK business was strong enough to withstand the current turmoil in the financial markets.
The Office for National Statistics said the net rate of return for outside the financial sector jumped to 15.7% in the three months to June, up from 15.1% in the three months to March. The average for 2006 was 14.6%.
Meanwhile, the rate of return in the manufacturing sector in the three months to June climbed to 8.4% from 5.6%, in spite of having been particularly hard hit by high energy and raw material costs, and consequently having to face the biggest squeeze on margins.
Profitability among ser- vices companies over the period came in at an all time high of 21.4%, lifted by the sector's extended robust expansion.
Howard Archer, the chief UK economist for Global Insight, said: "All sectors saw improved profitability in the second quarter.
"This suggests that extended healthy activity has lifted firms' pricing power and enabled them to boost their margins, even though they have faced high energy and raw material prices."
The rate of return for North Sea oil companies rose to 30.7% from 25.3%, boosted by a firming in oil prices from their January lows of around $50 a barrel.
The price of US crude oil for November delivery yesterday slipped to $80.05 a barrel, but last month hit a record high of $83.90.
Roger Bootle at Capital Economics said the further rise in annual profits growth in the second quarter to around 20% was because the economy has been running above trend for some time.
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