PROFITABILITY in Britain’s companies has slumped to its lowest level in almost a decade, adding to growing woes over the country’s economic performance.

The rate of return on capital invested in UK non-financial companies dropped in the third quarter of last year to only 11.0 per cent — the worst figure since the end of 1993, official figures showed.

The news was seized on by the Conservatives, who accused the Government of undermining business with tax rises and excessive regulation.

With the Bank of England’s Monetary Policy Committee (MPC) due to begin its two-day interest rate meeting this morning, the data fuelled demands for a cut in interest rates.

The brunt of the deterioration in profitability was borne by industry, but a slide in performance was evident across all sectors, the figures showed.

In manufacturing, the rate of return dropped to 6.8 per cent in the third quarter from 7.6 per cent in the previous three months. Services companies saw a drop to 13.1 per cent, down from 14.2 per cent in the previous quarter.

John Butler, of HSBC, said: “This is primarily a manufacturing story. However, it is the first sign over the past year of any weakness in the service sector which has until now been the engine of growth in the economy.” Mr Butler added that the decline in profitability could reflect a squeeze on returns from higher wage growth.

Tim Yeo, the Shadow Trade and Industry Secretary, accused Labour of inflicting £15 billion a year in extra tax and regulatory costs on companies. “It is little wonder profits are down,” he said.

However, the Treasury blamed the figures on the global downturn. A spokesman said: “No country can insulate itself from world events.”

Unions called for the MPC to act. Roger Lyons, joint general secretary of Amicus, said a half-point rate cut was needed “to try to repair some of the damage already done”. About 200,000 jobs could be lost in industry this year, he claimed.

A Recruitment and Employment Confederation survey showed that numbers finding permanent jobs hit a three-month low in December.