CBI report a drop in service sector growth

According to a survey conducted by the Confederation of British Industry (CBI) businesses operating in the UK’s service sector has seen an unexpected fall in sales in the last three months. Consequently this has pushed profitability lower and business levels remain well below normal.

The CBI surveyed a total of 179 service sector firms – divided into the Business and Professional Services (e.g. accountancy, legal and marketing firms) and Consumer Services (e.g. restaurants, bars, travel and leisure) respectively.

Of the businesses in the Business and Professional services sector surveyed it was reported that the volume and value of businesses had fallen despite expectations that this would increase. Only 21% of companies claimed to have seen an increase in profit, whilst 48% reported a drop in profitability.

The Consumer Services survey reported that the volume and value of business fell and in fact the volumes declined more sharply than the previous quarter. This has resulted in a drop in profitability despite the rate of decline being at its slowest since February 2008. Of the businesses questioned 21% of them reported a rise in profits but 34% reported a drop.

Both of the sub-sectors surveyed have said that the level of demand or sales is the main restriction on future growth, with the inability to raise funds also being a major concern. This is particularly worrying for small businesses looking to the banks for further funding as many of them continue to be cautious and quite frugal in the current economic climate.

The CBI have previously addressed the issue of small business funding and have urged for more localised lending, with the emergence of regional financial institutions to supply companies with the financial backing they so urgently require for growth.

Despite these unpromising looking figures the CBI have said that confidence amongst businesses in the sector is increasing and is at its highest since February 2007.

Ian McCafferty, the group’s chief economic advisor, stated that the findings of the survey were disappointing, especially as businesses had hoped for a strengthening in conditions this quarter. He went on to say:

"Consumers and businesses are continuing to cut back on spending on goods and services, and firms operating in the sector are responding by cutting prices to stay competitive"