Economic woes hitting professional service firms

THE service sector delivered a shock to recovery hopes today, as it emerged that problems in the consumer economy had spread to accountancy, legal and marketing firms.

The latest survey by lobby group the CBI shows business volumes in the service sector are falling at the fastest rate since November 2009.

The squeeze on real incomes and economic uncertainty meant that sales for consumer-facing companies had been widely expected to decline, but the negative reading for business and professional services came as a surprise.

The CBI’s head of fiscal policy, Richard Woolhouse, said: “This quarter we’ve seen more evidence of the ongoing decline in consumer services spending, as people with increasingly squeezed household incomes are forced to cut back their discretionary spending.

“What is new, and was not expected this quarter, is that spending on business and professional services also fell, something not seen since November 2009.”

But he said that despite tough trading conditions, business and professional service firms had managed to increase staff numbers, while employment in consumer services fell more slowly than expected.

The August quarterly CBI service sector survey showed that among business and professional services companies such as accountancy, legal, and marketing firms, a balance of 22 per cent reported that the value and volume of their business had fallen.

In consumer related service businesses such as hotels, bars and restaurants, the ongoing decline in business volumes has intensified to a balance of -25 per cent in the last three months. Values also fell at a pace similar to that seen since the start of the year.