Service sector optimism falls as profitability hit

The UK's service sector experienced a drop in optimism in the three months to November, with profitability hit by increasing costs and lethargic business volumes, new data published today has revealed.

Optimism fell among consumer services companies. Picture: John Devlin

The CBI, which represents 190,000 businesses across the UK, said its latest quarterly survey of the sector however unveiled some cause for optimism, with the fall less severe than in the prior quarter and hiring intentions remaining robust, for example.

The lobby group’s findings also revealed some divergence between different types of company. Business and professional services firms, including accountancy, legal and marketing organisations, found their optimism about the business situation fall to a balance of -19 per cent, as 18 per cent said they were more optimistic than three months ago, whilst 38 per cent said they were less so. They also reported that business volumes scarcely grew, and are expected to drop slightly next quarter, with the weakest expectations since August 2012.

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However, consumer services companies, encompassing hotels, bars, restaurants, travel and leisure, saw optimism drop to a balance of -4 per cent as 13 per cent of firms said the outlook was better than three months ago, whilst 18 per cent said they were less confident. This part of the services sector also experienced business volumes growing “modestly”, with a balance of +8 per cent reporting a rise. Additionally, quicker growth was expected in the next three months.

Rain Newton-Smith, CBI’s chief economist, said the “resilience of the British shopper” was strengthening the outlook for consumer services. She also highlighted “strong” employment growth across service sector firms.

In business and professional services, 24 per cent of companies said numbers employed were up on three months ago, and 18 per cent said they were down, giving a balance of +6 per cent.

Turning to consumer services, growth in numbers employed grew at the fastest pace for a year, and a balance of +34 per cent of businesses said numbers employed were up on three months ago.

The CBI also said growth in spending and intentions to spend on training and retraining were “encouraging, particularly in consumer services”.

While the share of firms expecting to expand their business over the year ahead were “in a clear minority in both sub-sectors” according to the CBI, with a balance of -17 per cent among business and professional services firms, Newton-Smith nevertheless remained upbeat.

She said: “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.”

Prime Minister Theresa May told the CBI last week that the strategy “will back Britain’s strategic strengths and tackle our underlying weaknesses”.