UK industrial and commercial companies' (ICCs) performance has differed markedly between the recent recession and that during the early 1980s. This article compares how companies have performed in the two recessions, and reviews company performance in 1992 and the first quarter of 1993. The main points include:
- lCCs took earlier and l110re active steps to adjust in the recent recession: labour costs in particular were contained earlier than in the previous cycle.
- Higher productivity, greater competitiveness and higher capacity utilisation have kept the return on capital in the non North Sea sector some three percentage points higher throughout this recession than the previous one.
- This helps to explain why, despite substantial falls in recent years, business investment as a share of GDP was nearly three percentage points higher in the early 1990s than in the early 1980s.
- But ICCs have been more indebted than in the previous recession, partly because their borrowing requirement averaged 7.4% of GDP in the five years to 1992, compared with 2.2% in the five years to 1982.
- Although there was little overall change in company profits, retained earnings or the financial deficit between 1991 and 1992, each of these indicators had improved significantly by the first quarter of 1993. But many firms, particularly smaller ones, still face strong financial pressures.
- The shift away from bank borrowing accelerated in the first quarter of 1993.