Fears raised of two-track recovery

CONCERNS over a two-track recovery in Britain's key services sector will increase today as a study shows a widening gulf between professional services firms and consumer-facing businesses.

The CBI's latest survey reveals that hospitality, travel and leisure companies suffered their weakest sales volumes since November 2009 over the last three months - much worse than feared by the City.

By contrast, companies offering business-to-business services enjoyed a rise both in volumes and value for the second successive quarter.

The CBI study will add to fears over weak consumer spending, which is expected to hamper GDP growth this year.

Despite the difference in fortunes, both sectors reported a squeeze on profitability as a result of rising costs.

Business and professional services firms reported that average costs per employee nudged upwards during the period covered by the survey - 27 April to 18 May - and they expect total costs to rise faster over the next three months. However, they have continued to take on staff and expect employee numbers to increase again over the next quarter.

Consumer businesses saw costs per employee rise at the fastest pace for three years. Companies in this area have been forced to respond by raising prices and cutting back on staff.

Ian McCafferty, the CBI's chief economic adviser, said "The survey shows further evidence of weak demand for consumer services in the UK."