Service sector profits slide to 3-year low

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The Independent Online

Profitability among services companies fell to its lowest level for almost three years over the autumn, according to official figures yesterday that prompted warnings of a wider economic slowdown.

The sector, which forms the bedrock of the UK economy, saw its rate of return fall to 15 per cent over the three months to November, the lowest level since the first quarter of 2002.

The decline dragged the overall annualised level of profitability down to 13.6, its first slowdown for a year.

"The drop in profitability is bad news, but just for UK businesses and shareholders," said Roger Bootle, the City economist who advises accountancy firm Deloitte.

"From affecting investment and employment growth, to share prices and pension funds, profits are the lifeblood of the UK economy."

The British Chambers of Commerce said the figures echoed its own survey of the third quarter, which revealed a 'disturbing" slump in service sector confidence.

The BCC found that both sales and orders had fallen and blamed rising interest rates and the growing burden.

David Kern, the BCC's chief economic adviser, said: "I have said for some time that the economic expansion is slackening and while I don't see a recession growth will head below trend during 2005 and 2006."

Mr Bootle warned that profits growth would fall further, as the global economic slowdown, the delayed impact of higher commodities prices and intense high street competition hit profit margins.

"Economic growth now looks to have peaked in the cycle and just as profits growth followed GDP growth on the way up, it is sure to follow it back down again" he said.

The fall was offset by a surge in profits among the UK oil majors, who cashed in on the surge in oil prices that hit an all-time high of $55 a barrel over the autumn.

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