Profits at UK companies rise to a six-year high fuelled by oil rally

THE oil price rally and British American Tobacco’s $49bn (£37.6bn) swoop for US cigarettes giant Reynolds helped UK companies extend a surge in profits in 2018.

Profits jumped 86pc to £210.8bn in the 12 months to June, their highest level in six years, the Share Centre’s Profit Watch report found. But earn- ings growth is likely to slow sharply in the next year as recent drops in commodity prices and heightened trade tensions take their toll.

The jump in profits was flattered by British American Tobacco’s acquisition of Reynolds, a tie-up that created the world’s largest listed tobacco company. Excluding the FTSE 100 tobacco mammoth, profits still climbed 66pc.

A rally in oil prices to May’s peak of just under $80 per barrel has helped profits triple since their 2016 nadir. Oil and gas companies provided the largest contribution as profits recover following the crude slump that forced oil cartel Opec to cut production to boost prices. However, the Share Centre warned that growth is expected to slow from its “recent breakneck” pace. Analysts are pencilling in earnings growth of just 6.7pc in the next 12 months, a “marked slowdown”, it said.

Although GDP growth in the United States jumped to a four-year high in the second quarter, the UK and eurozone economies have decelerated in 2018 and global stocks have struggled to maintain their momentum.

Trade tensions between the US and China have rattled markets. After soaring 25pc last year, the Dow Jones has risen just 3pc in 2018 while the FTSE 100 has slipped back.

Donald Trump turned up the heat on Beijing last week by asking his top trade representative, Robert Lighthizer, to consider a 25pc tariff on $200bn (£154bn) of Chinese goods in a bid to force Xi Jinping’s government to return to trade talks. But China warned the White House that it would retaliate to another wave of tariffs.

Metal prices have started to pull back amid fears of global growth being blown off course. The price of copper has tumbled 15pc from June’s four-year high while Opec members are now ramping up oil production again after shifting the glut of crude that was previously putting pressure on prices.

The Share Centre’s Helal Miah called an expected slowdown “natural” following the recent jump in profits but warned that “risks are rising”.

“Growing global trade tensions, and less robust global demand than some had hoped, have already caused recent falls in the price of many commodities.”

He added that Uk-focused firms are also “mired in uncertainty caused by the Government’s paralysis over Brexit”.