A WIDENING profits gap between services and manufacturing at a time of weak investment is baffling bosses.

Latest figures on UK corporate profitability show net rates of return for service enterprises rose to 17.5 per cent in the first quarter of 2005, but fell to just six per cent in manufacturing.

The rate of return from manufacturing has fallen by a third in the past five years, while it has remained unchanged in the service sector.

The Kent branch of the Institute of Directors (IoD) has expressed surprise that business investment, which is normally linked to corporate profitability, remained weak.

Business investment rose by just 0.1 per cent in the first quarter.

Alyson Howard, director of the IoD Kent branch, said: "Contrasts leap out from the latest statistics.

"Firstly, the divergent profitability of the manufacturing and services sector in the UK and, second, the weakness of business investment, despite strong profitability in the services sector.

"What is unclear is the extent to which weak business investment is the result of companies plugging pension fund deficits, or whether it is a measurement issue owing to under-recording of IT investment."