Services firms' profits bounced back after a weak start to 2017

Jasper Jolly
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Services firms found their profits picked up in the third quarter (Source: Getty)

British services firms breathed a sigh of relief in the third quarter of last year as profitability lifted off four-year lows hit in the previous quarter.

Services companies' net rate of return, the economic gain on capital used, increased to 19.1 per cent in the three months to September, according to data published today by the Office for National Statistics (ONS).

The figures represented a welcome increase for services firms after their rate of return fell to 16.6 per cent in the second quarter, the lowest since the end of 2013.

Read more: Britain's services sector enjoys welcome uptick in growth

Business leaders have expressed concerns over the last 18 months about the impact of the falling pound, which has prompted a wave of inflation from higher import costs.

Soaring input costs forced companies into an unenviable choice between absorbing rising costs in their margins or passing them on to consumers, squeezed by price rises throughout the economy.

Services firms' profitability had previously failed to pick up in all but one quarter since the third quarter of 2015, when it reached 22.6 per cent.

Meanwhile, profitability in the manufacturing sector dipped slightly from the highest rate of return since the ONS started collecting the data of 15.8 per cent in the previous quarter, to reach 13.4 per cent.

However, the data still showed a pick-up in manufacturers’ profits over the last year, aided by the weakness of sterling, which has boosted exporters’ margins in particular. The third-quarter reading was the second-strongest third quarter for manufacturers since the records began.

Read more: Profitability in UK's dominant services sector slumps to lowest since 2013

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