Companies in the UK have recorded their first increase in profitability for five years, according to a new report.

Figures released today by information solutions provider Experian, show that the average return on capital among UK companies rose from 4.7 per cent in the 12 months to December 2003, to 5 per cent in the twelve months to March 2004.

Of the sectors performing well over the period, Media and It, previously loss making sectors, returned to profitability, with net gains of 0.6 per cent and 0.4 per cent respectively.

Among service sectors, both food retailing and non-food retailing continued to improve their profitability, albeit at a slower rate than in the previous quarter.

However, not all sectors have reason to celebrate. The engineering sector in particular has declined from a loss of 2.8 per cent in the final quarter of 2003 to one of 3.7 per cent in the final quarter of 2004.

Experian put such net losses down to the oversees strength of the pound, intense price competition and increasing employment costs brought about by added regulation.

Peter Brooker of Experian, said: “The UK economy has grown in every quarter since corporate profitability began to fall away in 1999, but GDP has been boosted during this period by rapid growth in public spending. This has mitigated the fall-off in manufacturing and, more recently, weakness in some of the service sectors covered in the report.”

On a regional basis, Yorkshire and Humber was the only region to witness a fall in company profitability.

The most successful region was the East Midlands, where average profitability grew from 10.9 per cent to 12 per cent during the first quarter of 2004.

Brooker said: “Despite some encouraging signs, businesses continue to operate in an environment of great uncertainty, particularly in relation to the recent hikes in oil prices, which could unravel al the positive that has been made in recent months.

“Therefore, it is more important than ever for companies to take every precaution to ensure that the companies they do businesses with are financially stable enough to make it through the next 12 months.”