Member Article

Service sector slows after multi-year highs but firms remain upbeat

Service sector growth has slowed during the three months to August, according to the latest CBI Services Sector Survey.

Despite this slowing, optimism increased in the sector and there are expectations for a return to growth.

Growth in business volumes eased compared with recent quarters, and profitability also rose at a slower pace, but this came after multi-year highs in the previous quarter.

Other indicators in the survey painted a healthier picture of activity in the sector. Growth in numbers employed in the business and professional services sector, which includes accountancy, legal and marketing firms, reached its highest rate in nearly seven years, with expectations for the coming three months at a record high since the survey began in 1998.

Investment intentions for the year ahead in the consumer services sector, which includes hotels, bars, restaurants, travel and leisure firms, are particularly robust, with plans for spending on vehicles, plant and machinery also at a record high.

However, the survey of 215 firms revealed there is increased concern that the availability of professional and clerical or other staff is likely to limit business expansion over the next year.

Katja Hall, CBI deputy director-general, said: “The slowing in the pace of growth and profits in the service sector reflects our view that momentum in the economy will ease in the second half of the year.

“But this doesn’t necessarily mean a gear change in the recovery. It’s encouraging that our service sector firms continue to feel upbeat, especially when looking ahead to the next quarter.

“Employing more staff and planning to increase investment are positive steps in the quest for sustainable growth. However, skills shortages mean it is increasingly hard for firms to find and hire the right people. It’s important that business and government address this issue together, to put the economy of the future on the right footing.”

Findings include:

• Consumer sector: 47% of firms expect the rate of business expansion to increase in the year ahead, whilst 52% do not, giving a balance of -5%. The availability of professional and clerical/other staff are cited as factors likely to limit expansion (by 12% and 7% of firms respectively, up from 7% and 1% in the previous survey).
• 63% of firms expect the rate of business expansion to increase in the year ahead, and 36% do not, giving a balance of +27%, the lowest since May 2013 (+14%), but well above the average of +3%. The availability of professional staff is cited as a factor likely to limit expansion in the year ahead by 45% of firms, the most since May 2008.
• Professional services: Optimism about the business situation rose (+31%), as 44% of firms said they were more optimistic than three months ago, whilst 13% said they were less optimistic.
• 63% of firms expect the rate of business expansion to increase in the year ahead, and 36% do not, giving a balance of +27%, the lowest since May 2013 (+14%), but well above the average of +3%. The availability of professional staff is cited as a factor likely to limit expansion in the year ahead by 45% of firms, the most since May 2008.

This was posted in Bdaily's Members' News section by Clare Burnett .