Leisure firms still shedding jobs despite sector recovery

Takings in the pubs and restaurant sectors have risen but, with prices remaining static, profits have dipped. Picture: Phil Wilkinson
Takings in the pubs and restaurant sectors have risen but, with prices remaining static, profits have dipped. Picture: Phil Wilkinson
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Britain’s dominant services sector is growing at its fastest rate since the financial crisis, but consumer-facing firms are still struggling with profitability and shedding jobs.

The CBI’s quarterly survey, published today, shows business services such as law and accountancy are performing particularly strongly and expect to grow even faster in the months ahead, as sentiment hits a 15-year high.

Consumer service businesses such as pubs and restaurants were faring less well, however, as the squeeze on household incomes made it harder for them to put prices up and led to a fall in profits even as takings increased.

Stephen Gifford, the CBI’s director of economics, said: “We’ve seen a further build-up of momentum in the service sector this quarter, with business and professional services firms in particular seeing a turnaround in their fortunes.

“Confidence has risen strongly across the board, and the outlook is positive in the short term. But consumer services firms are a bit more worried about the longer term, and have scaled back their investment and expansion plans.”

Gifford said conditions in the leisure sector remained tricky as consumers grapple with the prolonged squeeze on real incomes, but he expects business should continue to pick up through this year and into next.

The CBI found that, in the three months to August, the business and professional services sector saw volumes rise at their fastest pace since November 2007. Profitability recorded its strongest growth since February 2008, while optimism about future business rose at the fastest rate since the survey began in November 1998.

For consumer services, such as hotels, bars, restaurants and the travel and leisure industries, business volumes grew at their fastest pace since August 2007 and business confidence rose for the fourth consecutive quarter. However, profitability fell unexpectedly, recording its largest decline since February 2012 as prices failed to rise.

While professional services firms were taking on extra staff in response to their growth, consumer services firms were cutting back on jobs as they expect profitability to decline further in the current quarter.

Consequently, investment plans in the consumer sub-sector have weakened and on average firms are not expecting to expand their business over the next 12 months.

The CBI’s survey is the latest indicator to suggest that Britain’s economic recovery is gaining momentum and should be able to at least match its second quarter growth of 0.7 per cent over the summer months. The official reading for the three months to June was revised upwards last week, while the latest purchasing managers’ surveys show business is increasing across all sectors.

It comes as a survey of senior finance officers by the CA magazine and law firm DLA Piper found that just under half of those based in Scotland believe that the economy will experience “slow but consistent growth” over the next year. That is considerably more optimistic than last year’s 11.2 per cent.

However, the survey warned that the spectre of redundancies still looms large, with more than 12 per cent of firms expecting to make cuts in the next 12 months.