Profitability Monitor – 2009 Q1

Our regular assessment of the current state of the profitability of British business and the economic factors influencing its prospects for the future, prepared by Roger Bootle, Economic Adviser to Deloitte.

• Profitability began to deteriorate last year, but the effects of the recession are now more clearly taking their toll. Although the near-term outlook for the economy has recently improved, I doubt that it will be growing at rates consistent with rising profits until 2011 or even 2012.
• The fall in profitability in the oil sector seen in Q1 should be short-lived, given the rise in oil prices over the past few months. But there are no such hopes for the non-oil sector. Admittedly, the fall in manufacturing profitability largely just reversed Q4's rise. But the sharp fall in services profitability from 15.8% to 13.8% took it to its lowest level since 1993. I expect both to fall further in the coming months.