Activity picks up and confidence rises in services sector - CBI
Business activity in the service sector grew to its highest level since 2007 and confidence rose strongly, according to the CBI’s quarterly Service Sector Survey.
Business and professional services saw a particularly sharp turnaround in business volumes, while activity in consumer services picked up further.
The business and professional services sector, which includes accountancy, legal, and marketing firms, saw business volumes rise at their fastest pace since November 2007, in line with expectations. As a result, profitability recorded its strongest growth since February 2008. Looking ahead, optimism about future business reached a fifteen-year high – rising at the fastest rate since the survey began in November 1998.
Consumer services, such as hotels, bars, restaurants and the travel and leisure industries, saw business volumes rise at their fastest pace since August 2007, also in line with expectations. Business confidence grew for the fourth consecutive quarter. Profitability, however, fell unexpectedly, recording its largest decline since February 2012 as price growth failed to materialise.
The survey of 161 companies revealed expectations for a strong quarter ahead, with both sub-sectors expecting the fastest growth in value and volume of business since 2007. However, while business and professional services firms expect overall profitability to continue to grow and further strong growth in headcount, consumer services firms expect another fall in both. Investment and expansion plans for the year ahead have also diverged for the two sectors. Business and professional firms’ have their strongest expansion plans since February 2006, while consumer services firms are cautious across all areas of investment.
Stephen Gifford, CBI Director of Economics, said:
“We’ve seen a further build-up of momentum in the service sector this quarter, with business and professional services firms in particular seeing a turnaround in their fortunes.
“Confidence has risen strongly across the board, and the outlook is positive in the short-term. But consumer services firms are a bit more worried about the longer-term, and have scaled back their investment and expansion plans.
“Conditions remain tricky as households grapple with the prolonged squeeze on real incomes and business confidence remains vulnerable to any adverse developments in the global economy. But, all being well, business should continue to pick up through this year and into next.”
The Service Sector Survey was conducted between 26th July and 14th August, with 97 business and professional services firms and 64 consumer services firms responding.
The key findings are:
- Optimism about business conditions rose at a similar pace to the previous quarter (+28% compared with +30%)
- Business volumes growth slightly exceeded expectations (+15% compared with +11%), recording the strongest increase since August 2007 (+15%). Stronger growth is predicated next quarter (+26%)
- Profitability saw its sharpest fall (-15%) since February 2012 (-24%) and a further fall is expected in the coming quarter (-13%)
- Numbers employed fell (-11%), disappointing expectations (+3%), and are expected to fall further in the coming quarter (-24%)
- Firms are not expecting to expand their business over the next twelve months (-14%)
- Investment plans for land and buildings, IT and vehicles, plant and machinery for the year ahead have weakened since the previous survey (-24%, +3% and -11% respectively), and demand uncertainty has risen (cited by 61% of respondents as a constraint on investment)
Business and Professional Services
- Optimism about business conditions rose significantly (+36%), at its fastest rate since the survey began in November 1998
- Business volumes grew (+20%) at the fastest rate since November 2007 (+26%), and are expected to grow further in the next three months (+26%)
- Profitability saw its sharpest rise (+9%) since February 2008 (+9%), and further growth is expected in the next three months (+15%)
- Numbers employed grew strongly (+22%), the fastest rate of growth since November 2007 (+33%). Further growth in headcount is expected in the next three months (+36%)
- Firms are expecting to expand their business (+39%) to the greatest extent since February 2006 (+42%)
- Planned spending on IT in the year ahead rose sharply on the previous quarter (+21% compared with +6%), but concerns that labour shortages will constrain capital expenditure have risen (cited as a constraint by 17% of respondents compared with 2% in the previous survey)
The CBI is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing and Delhi the CBI communicates the British business voice around the world.