The service sector saw a decline in optimism in the three months to November, although the fall was less sharp than in the previous quarter, according to the CBI’s latest quarterly Service Sector Survey.
Business and professional services firms – which include accountancy, legal and marketing firms – reported that business volumes barely increased and they are expected to fall slightly next quarter.
Consumer services companies – which include hotels, bars, restaurants, travel and leisure – saw business volumes grow modestly, with expectations for faster growth in the next three months.
The combination of sluggish volumes growth and rising costs per person employed has led to a drop in profitability across the services sector, with a further decline expected. The share of firms expecting to expand their business over the year ahead were in a clear minority in both sub-sectors.
Hiring intentions remain strong, however, with employment growth expected to accelerate next quarter. Growth in spending – and intentions to spend – on training and retraining are encouraging, particularly in consumer services.
Investment intentions were mixed. Firms expect overall capital expenditure on IT to rise at a robust pace, but plan to cut back investment in other areas, like land and buildings, vehicles, plant and machinery.
Rain Newton-Smith, CBI Chief Economist, said:
“Optimism among firms in the UK service sector has fallen this quarter, as rising costs and sluggish volumes of business have led to a drop in profitability.
“We’re also seeing diverging fortunes in the service sector. Business and professional services expect to see weaker growth in volumes next quarter while the resilience of the British shopper is boosting the outlook for consumer services.
“But employment growth remains strong and service sector firms are looking to hire in the months ahead. Many firms still plan to invest in IT, but uncertainty over future demand could act as a restraint.
“The Autumn Statement will have offered some comfort to businesses as the Government looks to build on the UK’s economic strengths, with an Industrial Strategy that helps deliver growth across the country.”
