UK Company Revenues Hit Record Highs But Margins Feel Pressure Amid Slowing Growth

News of margin pressure has hit telecoms the hardest, with Vodafone reporting large losses

News of margin pressure has hit telecoms the hardest, with Vodafone reporting large losses

UK company revenues increased for the tenth consecutive quarter in Q4, up by 10.9% year-on-year - but margins are coming under pressure in a number of sectors, according to the latest update from The Share Centre's Profit Watch UK report.

The latest quarterly report revealed profits also reached a new record but typical earnings growth has "slowed markedly", squeezing margins for the first time in two years, having fallen to 5.1% this year from 6.7% six months ago.

Pre-tax profits have quadrupled in the last two years but growth took a hit in Q4 at just 1.3% to a total of £33.5bn. According to Profit Watch UK, this was the ninth consecutive quarterly expansion though it remained a long way behind the revenue increases.

Overall, companies delivered an extra £41.5bn in revenues, with all sectors' revenues higher or flat in Q4.

UK pre-tax profits hit new record of £218bn in Q3

The largest contribution came from the oil sector, where an additional $20 on the oil price helped giants BP and Shell grow the sector's top line by over £33bn year-on-year. This is the highest level seen since 2013.

The banking sector also had a successful quarter, experiencing the strongest revenue growth since early 2017, helped by the "beginning of normalisation in global interest rates".

HSBC was the biggest winner, helping the sector's overall profits jump by 11.9%.

Meanwhile, food retailers also did well, helped by UK food inflation of 2.3% though growing consumer caution meant non-food sales were subdued.

Despite revenue success across various industries, the emergence of margin pressure has hit telecommunications the hardest, with Vodafone reporting large losses.

The report's index of UK revenues rose to a record 161.4, an increase of more than 60% since the peak of the 2007 boom, while the pre-tax profit index rose to 120.8, showing UK company profits have risen by just over a fifth in the last 11 years.

This record figure however was "flattered" by a large one-off profit made by British American Tobacco, which will soon drop out of the figures. The report said this means "profits still have some way to go to catch up with revenues".

About the author

Jayna is senior reporter and investment trust correspondent at Investment Week. She joined the publication in August 2015 after graduating with an MA in Multimedia Journalism from the University of Kent.

Jayna holds the NCTJ diploma and has experience in print, online and broadcast journalism. She is responsible for the Investment Week monthly podcast.

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