Profit margins 'on the rise' for UK's big companies

Lucy Harley-McKeown
·2-min read
Among the biggest companies in the economy, profits and markups appear to be rising, according to an analysis. Photo: Toby Melville/Reuters
Among the biggest companies in the economy, profits and markups appear to be rising, according to an analysis. Photo: Toby Melville/Reuters

Competition in the UK economy as a whole may have declined since the turn of the 21st century.

According to a new report by the Competition and Markets Authority, concentration in the market has risen as a result of the 2008 recession and, though it has decreased slightly since 2010, it remains 3 percentage points higher today than in 1998.

The analysis showed that among the biggest companies in the economy, profits and markups appear to be rising. The biggest firms saw mark-ups increase by 9% over the last 20 years.

The report is the first of its kind and notes that while there is no one metric of the level of competition in the whole economy, changes can be approximated on the basis of the structure of industries, indicators of dynamic competition such as the stability of the positions of the largest firms in the economy, and profitability and markups. The research also looked at profit and mark-up persistence and consumer surveys.

The analysis said: “Overall, we find that all the measures of competition we considered deteriorated during the recession in 2008 to 2009. The recovery in most measures since that recession was only partial and did not lead to a return to where they were before.

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“This means that even though some recent trends in the years prior to the pandemic have been positive, we need to be vigilant in protecting and promoting competition. This is especially the case considering the current economic context, which may lead to further deterioration in competition.”

Mike Walker, Chief Economic Adviser at the CMA, said: “Understanding what is really happening to competition across the UK economy is more important than ever as we start to analyse the impact of a devastating global pandemic.

“Our findings suggest a need for vigilance – by the CMA and by government – to ensure competition is not weakened because of the effects of coronavirus.”

The report noted that there had not been a spike in company closures during the pandemic, but 40% of firms have postponed or reduced plans to expand.

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