This article reviews the performance of UK industrial and commercial companies during 1989. The main points include:
- The substantial slowdown in domestic demand growth during 1989 was accompanied by some fall in company profitability from its 1988 peak. Profitability nevertheless remained above the average for the past decade.
- Total company income was buoyed by revenue from exports and/rom overseas branches and subsidiaries, as world demand was relatively strong.
- Investment expenditure remained high, even when 'special projects' are omitted. This reflected high levels of capacity utilisation and expectations of good profitability.
- The company sector financial deficit rose to a record £24 billion (5% of GDP) in 1989. This was in large part a result of substantial investment expenditure and record dividend payments.
- Net company liquidity deteriorated still further. Bank borrowing was very high for the second year running, in part a result of record cash-financed merger and acquisition activity.
- As interest rates and companies' stock of financial liabilities both rose, income gearing increased to very high levels.
- Although some retrenchment is likely in 1990, both by sectors already badly affected by the slowdown and by others seeking to reduce exposure, adjustment is expected to be much more modest than that seen in the early 1980s.