Profitability falls unexpectedly in service sector

Profitability fell unexpectedly in both the consumer and business and professional services sector in the last three months as business levels remained well below normal, according to the latest survey by business organsiation the Confederation of British Industry (CBI).

Profitability fell unexpectedly in both the consumer and business and professional services sector in the last three months as business levels remained well below normal, according to the latest survey by business organsiation the Confederation of British Industry (CBI).
The quarterly survey carried out in July and August canvassed 165 service sector firms, including business and professional – which covers accountancy, legal and marketing firms – and consumer services such as hotels, bars and restaurants, travel and leisure.
In consumer services, both the value and volume of business fell in the last three months when they had been expected to rise.  Nearly one third (30%) of companies said the value of business fell, while 21% said it had risen, giving a rounded balance of -8%.
One quarter of companies said volume fell, while one fifth said it had risen, giving a balance of -5%.  Both measures continued to be seen as well below normal by companies.
But looking to the next three months, firms said they expected to post a modest improvement.
In business and professional services, value of business fell with a balance of -13%. Firms expect profitability to fall further.
Ian McCafferty, CBI chief economic adviser, said: ”These survey results highlight that activity across the economy is patchy, with some sectors doing better than others.  And such conditions are likely to continue into next year.
”Although our recent retail surveys have shown increased sales of high street goods, this survey shows that households are still reluctant to spend on services.  Conditions remain difficult for consumer-facing firms, as volumes of business have edged lower over the past quarter.
”Firms selling to business and professional firms have seen their volumes move sideways over the past three quarters, and no growth is expected over the next three months.  Unsurprisingly, business confidence in this sector has fallen for the first time in over a year.
”We will not know the precise impact of public sector spending cuts, and how they will affect employment, until the Comprehensive Spending Review late in October.  In the meantime, there is uncertainty about the strength of demand in the coming year, and service firms are not optimistic about prospects for business expansion.”
The CBI is the UK’s leading business organisation, speaking for 240,000 businesses that together employ around a third of the private sector workforce.

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