UK-listed companies increased their annual profits by 5.7 per cent in the second quarter of 2017, but this could ultimately prove unsustainable as the domestic economy continues to slow.
According to the latest Profit Watch UK report from The Share Centre, which analyses raw data from the financial reports of the UK’s largest 350 listed companies, firms that reported annual results between April and June posted their best pre-tax profits since 2012.
In addition, consumer-orientated firms, industrials, and telecom companies enjoyed the fastest increase in sales in any reporting period since 2014, partly due to the weaker pound.
Retail companies have posted mixed fortunes. Next, Marks & Spencer and Sainsbury's have seen their profits decline, while Kingfisher, JD Sports, Morrison and Tesco have made positive contributions.
Mid-caps have continued to outperform the top 100, but according to the report this trend is likely to reverse as the UK economy slows further.
In July, the UK economy was given the thumbs down by the International Monetary, which downgraded the growth forecast for the UK economy in 2017 due to ‘weaker-than-expected activity’ in the first quarter of this year.
For investors, further uncertainty is created by the growing gap between stated and adjusted profits reported for FTSE 100 firms has reached its highest level in 10 years.
Helal Miah, investment research analyst at The Share Centre, says: ‘By any yardstick, this was a positive performance by UK plc. Consumer-orientated companies have been riding a wave of strong spending last year, while the relative strength of the UK economy last year, an improving global outlook, combined with the weaker pound have buoyed results.’
However, he cautions: ‘Looking ahead, the picture is much murkier. Since the beginning of the year, the domestic economy has slowed markedly, sparking a succession of profit warnings. The consumer has been living on borrowed time, and borrowed money.
‘As the devaluation-induced spike in prices has bitten deep into household incomes, so consumer confidence and spending power has ebbed away. The UK economy is slowing, so even those companies that performed extremely well recently may not continue to do so. By contrast, those with significant overseas operations are likely to do better, following the upswing in global demand.’
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