BBC Sunday, 15 July, 2001, 15:11 GMT 16:11 UK UK 'slipping into recession'

British industry is poised on the brink of recession with profits in many sectors down 15% and more declines to come, according to a new report.

The quarterly figures on company profitability from information provider Experian suggest the UK has not been immune from the slowdown in the world economy, as some have suggested.

They also show that a strong pound and too much red tape are hurting profits - particularly in the hard-pressed manufacturing sector.

The slump is affecting all areas of the country.

High tech crisis

The Experian survey shows that for the economy as a whole the average return on capital, a leading measure of profitability, fell to 11.18% by the end of last year.

This is down from 11.84% last September and signals the longest period of falling profitability since the recession of the early 1990s - 21 months.

And the worst may be yet to come.

Since the start of the year UK industry has witnessed the foot-and-mouth disease and the technology and telecoms crisis.

The gloomy news comes at the start of a week when many expect official data will start to confirm the British economy is cooling.

Inflation, unemployment and retail sales figures are all forecast to point to a slowdown.

Peter Brooker, author of Experian's quarterly corporate health check, said the economic slump was already hitting jobs and investment.

He added: "By the end of last year, the British economy was showing worrying signs of slipping into recession.

"The factors that have led forecasts for economic growth in 2001 to be reduced were already present during 2000 and the decline in corporate profitability appears to be gaining speed."

Heading for a loss

Seven industries have seen their profitability fall by more than one-fifth year-on-year - engineering, printing, paper and packaging, textiles and clothing, food manufacturing, media, non-food retailing and motor traders.

Mr Brooker said the textiles and clothing sector was in such steep decline it is expected to fall into an overall loss this year.

Other areas such as food retailing, transport and support services have seen their profitability fall by 15% to 20%.

Profitability fell in all regions between the third and fourth quarters of last year except the north-east and Scotland.

The year-on-year decline was more than 20% in the south-west, Wales, East Anglia and north-west and Yorkshire.

Interest rates

"The prospects for 2001 are not encouraging," Mr Brooker said.

"The fundamentals have not changed since the turn of the year, and if anything, key economic indicators such as manufacturing output, producer input prices, business investment and the balance of payments have all deteriorated.

"Maintaining interest rates at their current level will offer some respite for our manufacturers, but, if domestic demand is not brought under control, and the Bank of England raises interest rates towards the end of the year...there will be very little scope for the manufacturing sector to avoid falling deeper into recession."

-- Anonymous, July 16, 2001