Professional services hit hard says CBI survey

STEEP falls in service-sector profitability, which were mainly affecting consumer services, have spread to business and professional services, the latest CBI Services Sector survey shows today.

The survey, which covers firms such as legal services, marketing, computing, consulting and accountancy as well as leisure and travel firms, found that both business services and consumer services reported sharp falls in business volumes and values over the last three months, the first twin decline since May 2003 and both at a record pace since the survey began in 1998.

Confidence also fell sharply among these companies, while numbers employed fell modestly, ending 15 consecutive quarters of employment rises. There was also a record negative balance for expected business expansion over the next 12 months.

In the consumer services sector, the situation remained challenging. Although business volumes and values have held up better than expected over the past quarter, business levels are still considered to be “below normal”.

Costs per person employed grew at their fastest rate in four-and-a-half years, but selling-price inflation was its slowest for a year. Profitability fell sharply for the second successive quarter. Consumer services companies are not optimistic about the year ahead, either, saying they plan to invest less this year than last.

Ian McCafferty, chief economic adviser at the Confederation of British Industry (CBI), said: “Profitability in the service sector is clearly under pressure. This pressure, initially confined mainly to consumer services such as hospitality and travel, has now spread to the professional and business services sector, covering areas such as marketing and legal services.

“This reflects much tougher trading conditions for business and professional firms, after a period when business trends had been holding up in the face of the slowing economy.

“Across the service sector, business confidence has fallen and companies are negative about their investment and expansion plans for the year ahead.”   

The survey showed that travel services firms have had a particularly difficult quarter while in contrast, hotels, bars and restaurants saw their business volumes and values expand strongly over the past three months, ahead of expectations.

Telecoms and computing was the only business and professional sub-sector to avoid a fall in business volumes over the past quarter, and volumes are expected to remain stable over the next three months.

However, confidence within the sector has dipped, firms have cut back on employment for the first time in over a year, and a modest fall in profitability is expected next quarter.
 
The survey of 176 firms was conducted between July 23 and August 6.