8 December 2017


Surveys suggest services firms are under pressure

The CBI’s Service Sector Survey indicates a deterioration in performance for consumer services, while IHS Markit’s services PMI points to slowing in growth for the sector as a whole.

Surveys suggest services firms are under pressure

According to the CBI’s Service Sector Survey, firms reported a mixed performance in the three months to November. Business and professional services reported that business volumes were stable at below average levels, with sentiment improving slightly compared with three months ago. However, the survey indicated that consumer services firms are under pressure, seeing volumes decline at the fastest pace since February 2012 and optimism deteriorating for the second consecutive quarter. Rising costs continue to feed through to selling prices, particularly in consumer services where firms raised their prices at the fastest pace since 2008. 

Chiming with the CBI’s survey, the services PMI in November softened somewhat (to 53.8, from 55.6 in October). Input price inflation was the strongest since H1 2011, causing the fastest rise in prices charged by service providers since February 2008. The manufacturing PMI, meanwhile, rose to 58.2 in November, from 56.6 in October, with manufacturing companies reporting strong domestic market conditions and a continued increase in new export business. The construction PMI (which is not included in the composite) rose for a second consecutive month, to 53.1 in November from 50.8 in October, after a marked softening in conditions over the summer months.

On 28 November, the Bank of England released the results of its annual “stress tests” of UK banks, along with its latest financial stability report. The Financial Policy Committee (FPC) judged that the UK’s banking system would be resilient to an economic shock that was more severe than the global financial crisis, including a disorderly Brexit. Furthermore, for the first time since the Bank started stress-testing in 2014, no bank needs to strengthen its capital position.

While the FPC judges that domestic macroeconomic risks are at a “standard level”, it sees “material risks” from high global debt, high asset valuations, as well as misconduct costs. However, the FPC is not yet satisfied that the UK banking system is resilient to a disorderly Brexit taking place amidst a global recession. It also notes that it will be difficult for financial companies to mitigate fully the risks posed by Brexit to financial services, and has produced a four-point checklist of actions needed to preserve future financial stability.

For more information contact Charlotte.dendy@cbi.org.uk