UK: Expected recovery in services failing to materialise, says CBI

BUSINESS conditions in the UK’s services sector remained testing, with the stronger activity previously expected failing to materialise, according to a new survey.

Both Consumer Services and Business and Professional Services reported further falls in business volumes and values in the three months to August, against expectations that growth would turn positive, the CBI’s latest quarterly Service Sector Survey reveals.

Firms in Consumer Services, covering areas such as hospitality, travel and leisure, reported volumes and values falling at a similar pace to the previous quarter, while optimism regarding the business situation (minus 23%) was significantly lower than three months ago (minus 2%).

A balance of minus 10% of firms saw a fall in the volume of business having expected an increase in this quarter (plus 12%). The value of business conveys a similar picture, with a balance of minus 12% reporting a fall, where there had been expectations of a rise in this period (plus 22%).

The number of people employed in Consumer Services fell modestly (minus 8%) and training/re-training expenditure was reduced (minus16%).

Business activity is expected to see little change over the next three months, with firms envisaging that business volumes will fall at a similar rate (minus 11%) and that the pace of decline in business values will accelerate (minus 17%).

In Business and Professional Services, such as accountancy, law and marketing, the rate of decline in business volumes intensified (minus 21%) contrary to expectations of a slight rise in volumes (plus 4%). This was repeated in the figures for the value of business, with a balance of minus16% reporting a fall, versus positive expectations (plus 7%).

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Numbers employed remained largely flat (plus 3%) rather than increasing as expected (plus 18%).

Over the next three months, business volumes are expected to continue falling, albeit more moderately (minus 8%), and business values are expected to be broadly flat (minus 1%).

Anna Leach, the CBI’s head of economic analysis, said: “Conditions in the service sector have not improved as expected this quarter, with firms now more negative about the overall business situation than they were three months ago.

“Companies selling services to consumers continue to face challenging times, with price-cost pressures and a weak business environment squeezing profits.

“While business and professional services firms are continuing to see business volumes fall, they have also seen labour costs stabilise, helping to support headcount.”