Conditions worsening in UK services sector - CBI

Published on Monday, 28 November 2011 11:52
Posted by Scott Buckler

The UK services sector saw continuing decline in business volume and value in the past quarter, the CBI said today.Consumer Services in particular saw business conditions weaken more rapidly, with the fastest rate of fall in volume and value since 2009. Business volume and value also fell in Business and Professional Services, although at a lesser rate than expected

The November quarterly CBI Service Sector Survey was conducted between 28 October and 16 November, and covered 189 firms. Respondents are divided into Business & Professional Services, such as accountancy, legal, and marketing firms, and Consumer Services, such as hotels, bars and restaurants, travel, and leisure.

InConsumer Services, the ongoing decline in business volume and value intensified. Volume fell (a balance of -41%) at the fastest pace since May 2009 (a balance of -53%), while value fell at a pace last exceeded in February 2009 (-49%), disappointing expectations of -1% and +7% respectively.

Firms said that the level of activity was well below normal in both measures (-55% for volume and -53% for value), and optimism about the general business situation was lower than three months ago (-23%).

The volume and value of business are expected to decline further, but at slower rates (-23% and -17% respectively), next quarter.

Consumer Services firms saw costs per person increase (+43%) more quickly than expected (+24%), while selling prices were little changed this quarter (+3%), after a seven-quarter sequence of increases.

The combination of a sharp fall in business volume, flat prices, and higher cost growth (-31% after -16% previously) caused profitability to fall sharply in the three months to November.

The number of people employed also fell (-6%), though more slowly than expected (-11%). However, employment is expected to fall more strongly next quarter (-33% is the weakest expectation since -33% in February 2010).

InBusiness & Professional Services, business volume and value fell less strongly than in the three months to August, with balances of -6% and -12% respectively (previously -22% for both).

Firms said they regarded both the volume and value of business as well below normal (balances of -45% and -32% respectively), and they were less optimistic about the general business situation than they were three months ago.

Firms predict further, faster decline in both volume and value of business (balances of -20% and -21% respectively) in the coming three months.

Total costs per person employed (+34%) grew at their fastest pace since August 2008 (+49%), while average selling prices fell more quickly than anticipated (-11%).

The combination of a fall in volumes and a stronger cost-price squeeze led to a strong decline in profitability (-31%). Firms expect profitability to fall less quickly next quarter (-19%), when they predict there will be less of a cost-price squeeze (with balances of -11% and +23% for prices and costs respectively).

Despite the tough marketplace of the past quarter, numbers employed in Business & Professional Services grew (+9%) for the third consecutive quarter, in line with expectations (+8%). However, employment is expected to fall next quarter (-11%).

Ian McCafferty, CBI Chief Economic Adviser, said:

"Business conditions are worsening across the UK services sector, and consumer services firms in particular have been hit unexpectedly hard.

"This is yet more evidence of people with squeezed household incomes being forced to cut back on their discretionary spending.

"But spending on business and professional services also fell this quarter, with developments in the Eurozone and heightened uncertainty over global prospects causing a sharp drop in business confidence."

Business & Professional Services firms plan to strongly increase the amount spent on IT in the coming year compared to last year (+29%). Fear of an inadequate net return as a factor likely to inhibit investment was at its lowest in survey history (+13%).

In contrast, Consumer Services firms' concern about inadequate net return from investment was at its greatest for five years (+56% is the strongest balance since +56% in November 2006). Consumer Services firms have above-average IT investment intentions for the year ahead (+21% is significantly above the long-run average of +8%), but intend to spend less on land and buildings (-13%) and vehicles, plant and machinery (-27%).

In both Business & Professional Services, and Consumer Services, uncertainty about demand was the single biggest factor likely to limit capital expenditure (+68% and +67% respectively), and expansion (+89% and +88% respectively) in the year ahead.


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