UK plc's revenues have risen 17.3 per cent to £113.1bn in the last year, the biggest increase in six years, according to a new study by retail stockbroker the Share Centre.
Rising revenues have been accompanied by a 77.1 per cent growth in operating profit among the UK’s 350 largest companies.
Much of the increase in revenues and profits is attributed to the stellar performance from the mining company BHP Billiton over the last year, which saw its revenues soar by two-fifths year-on-year due to the recovery in commodity prices.
Without the contribution from BHP Billiton, this was still the fastest revenues growth (11.5 per cent) rate since 2011. Profits growth also stands at an impressive rate of 11.7 per cent without BHP Billiton.
UK plc’s growth came from growing sales among nine-tenths of companies, including housebuilders such as Berkeley and Redrow, and the broadcaster Sky. The weakening of sterling since last year’s EU referendum benefited UK exporters and increased foreign demand, helping industrials’ sales rise by a sixth.
Domestic demand has remained robust, but not all businesses at home have enjoyed stable growth. Retailers in particular, despite rises in sales, have faced higher prices and operating costs as well as reduced consumer spending caused by stagnant wages and rising inflation. This has led to drastic falls in pre-tax profits for Dunelm and Sports Direct.
The Share Centre’s investment research analyst Helal Miah said: “UK plc delivered a stellar set of results, improving for the third reporting season in a row. Higher profit should allay investors’ concerns over stretched stock market valuations and the sustainability of dividends.
“Strengthened demand abroad is an important part of the story, bringing higher commodity prices and improved consumer and corporate confidence – especially in Europe. This has supported exporters, and those with overseas operations. The domestic picture is more nuanced. Housebuilders’ results suggest the economy is in rude health, but these companies tend to lag the economic cycle, and their forward-looking statements are much less positive. Retailers are the canaries in the coal mine. While their sales grew strongly, this came at the expense of lower margins as consumers’ spending power was squeezed by higher inflation and low wage growth.
“A slew of profit warnings in the third quarter points to potential trouble ahead. Rising import costs will intensify pressure on real incomes, while Brexit-related uncertainty drags on the economy. Productivity remains in the doldrums. Domestically-sensitive stocks are now underperforming their global peers and this is likely to intensify as global demand grows faster than the domestic UK economy.”
The report also warned that the increasing costs of imported materials, poor levels of productivity, and Brexit uncertainty could undermine future revenues and profits.