UK companies fail to make profits amid high inflation.

UK companies fail to make profits amid high inflation.

Except for oil and gas extractors, who had the advantage of surging energy prices, the rest of the sectors failed to make a profit even though Britain recorded the highest inflation in four decades, as per the official data released on Tuesday.

Experts from the Office for National Statistics revealed that excluding companies involved in oil and gas extraction, the average net rate of returns on capital engaged by Britain was 9.5% in 2022, recording the lowest since 2011 and decreasing from 10.0% in 2021.

Recording the highest inflation rates since 1981 and compared to the current rest of the seven largest advanced economies, it peaked at 11.1% in October 2022, and its decline has been the slowest, dropping to 8.7% in April.

In comparison with concerns from central bankers in the eurozone, the Bank of England has stated that there is no evidence so far that rising inflation is being caused by excessive earnings from businesses, sometimes referred to as “greedflation.”

Net rates of return outside the oil and gas business were 9.6% compared to the fourth quarter of the previous year, when inflation was at the highest point in history. This is an increase from the third quarter’s 8.9%, but it is still below the 10.9% level seen three years ago, before to the COVID-19 outbreak, when it was 10.9%.

At a think tank focusing on issues affecting low-wage workers, an economist at the Resolution Foundation, Krishan Shah, stated: “The big picture is that while greedflation has become today’s hot topic, it does not seem that firms are expanding profit margins and raising returns.”

The already existing supply-chain bottleneck due to the COVID-19 pandemic, combined with the Russian invasion of Ukraine, has taken a toll on Britain as energy and food prices surge, compounding the inflation pressure.

Businesses linked to oil and gas from the North Sea recorded higher profit margins, with an average net rate of return of 18.2% in 2022, the highest compared to 2011. However, as the prices of oil and gas declined, these margins dropped to 12.7% in the final quarter of 2022.

The ONS stated: “Net operating surplus in UK continental shelf companies is strongly related to oil and gas prices.”

Britain’s government has imposed a 25% windfall tax on energy profits starting in May 2022, further anticipating in March that it would surge to 25.9 billion pounds ($32.7 billion) from 2022 to 2028.

- Published By Team Timeswire

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