Firms making "real progress" in rebuilding profits

COMPANIES across Europe and the US are making "real progress" in rebuilding profits but consumers are still fragile, professional services firm Deloitte warned today.

A study by the firm showed more than three-quarters of companies in the UK, US and Europe reporting second-quarter results so far had beaten City forecasts.

In all 76 per cent of 543 firms have exceeded expectations, which has helped to boost stock markets, chief economist Ian Stewart said.

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"Our analysis confirms that corporates are making real progress in rebuilding profitability," he added.

But one-off elements such as cost-cutting and rebuilding stockpiles in the wake of recession have driven the increase - raising doubts over the sustainability of the rise as these short-term factors fade.

Deloitte said UK and US profits would steam well ahead of wage growth this year.

Mr Stewart added: "With cost control to the fore the recovery in profits has not been matched by growth in consumer incomes or spending.

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"We are seeing a two tier recovery, with the corporate sector bearing down on costs and growing profits - and with consumer incomes and spending lagging behind."

The latest economic forecasts from the Bank of England on Wednesday are likely to underline the pressure on the consumer during the months ahead, with inflation above target but growth slowing.

VAT is set to rise to 20 per cent next January while food prices are rising sharply due to a Russian drought lifting wheat costs.

Governor Mervyn King has already signalled his doubts over a "sustained" recovery despite the rapid 1.1 per cent advance seen by the economy between April and June.

Consumers have been wary since the election and Chancellor George Osborne's emergency Budget in June, which unveiled a series of savage deficit-tackling measures predicted to slow the economy.

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