Business confidence rises in service sector as activity picks up

BUSINESS activity in the service sector improved over the three months to May according to the CBI’s quarterly Service Sector Survey.

Consumer services, such as hotels, bars, restaurants and the travel and leisure industries, saw business volumes rise at their fastest pace since August 2007.

As a result, overall profitability of consumer businesses rose for the first time since November 2007, in spite of employee costs continuing to increase.

But there are concerns among firms over a shortage of internal finance and an inability to access external funding.

Business and professional services saw weaker growth than expected. The sector, which includes accountancy, legal and marketing firms, saw activity staying broadly flat over the quarter. But while overall profitability fell, optimism regarding the business situation rose at its fastest rate since February 2010, as expectations for the next quarter appear brighter.

The survey of 170 companies revealed expectations of a firm quarter ahead, with business and professional services expecting solid growth in both the value and volume of business. Consumer services firms predict that growth in business will be sustained and profits in both sectors are expected to rise strongly.

Stephen Gifford, CBI director of economics, said: “There appears to be a sense of growing confidence in the service sector. We’ve seen some turnaround in activity this quarter, and a more positive outlook for the next.

“While activity has been pretty flat for business and professional firms, the outlook is much stronger.

“What’s promising is that consumer services have seen growth in activity, and expect this to continue pointing to a greater willingness from people to go out and spend.

“But there is concern around getting access to finance, so it’s vital that growing firms look at the full range of funding options out there on the market.”