Service sector firms’ bleak outlook

HOPES of the service sector leading the economy out of recession were hit today.

According to a survey from the CBI, instead of growth, companies operating in the service sector saw an unexpected fall in sales in the last three months, pushing profitability lower and keeping business levels well below normal.

The quarterly research, conducted between October 28 and November 11, covered 179 service sector firms. They are divided into business and professional services, such as accountancy, legal and marketing firms, and consumer services, including hotels, bars and restaurants, travel and leisure.

In business and professional services, the volume and value of business had been expected to strengthen further after the previous quarter’s modest growth. Instead both measures fell.

The decline in business volumes, coupled with another intense price reduction, meant the modest growth in overall profitability that had been hoped for failed to materialise, and profits fell for the sixth successive quarter.

Overall 21% of firms said profits increased, while 48% reported a fall, giving a balance of -27%.

In consumer services the picture was bleaker still, with falls in both volumes and value of business.
On a more positive note, the rate of decline is the slowest since February 2008.

Ian McCafferty, chief economic adviser at the CBI said:“The recent weakness in the service sector is disappointing, particularly as business and professional firms had hoped conditions would strengthen this quarter.

“This confirms the weakness reflected in third quarter GDP data and underlines the fragility of the economic recovery.

“Consumers and businesses are continuing to cut back on spending on goods and services, and firms operating in the sector are responding by cutting prices to stay competitive.

“It is worrying that so many firms cite the ability to raise funds as a constraint on future investment and business expansion.”