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Signs of stabilisation in UK service sector

26/05/2012

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...stabilising, and firms expect a somewhat better performance into the summer. The rate of decline in business volumes has slowed further, and growth is predicted next quarter for the first time since August 2010.

“Business and professional services firms saw similar rates of decline in business volumes this quarter as last, but are also predicting a return to growth next quarter for the first time in a year.”

Consumer Services firms’ investment intentions weakened this quarter across all categories. Less is expected to be spent in the coming year on land and buildings (-26%), and vehicles, plant & machinery (-22%). Investment intentions for IT are for spending to be relatively unchanged over the coming year (-2%), compared with last year.

In contrast, investment intentions improved for Business & Professional Services firms, who plan to spend slightly more in the year ahead on IT (+10%) and vehicles, plant & machinery (+5%) than they did last year, while leaving spending on land and buildings stable (-3%).

Firms in both sub-sectors again saw uncertainty about demand/sales as the single biggest constraint on capital expenditure authorisations, with above-average balances in Consumer Services (+55% against a long-run average of +47%) and in Business & Professional Services (+63% against a long-run average of +58%), while replacement remained the strongest investment motive in both sub-sectors (balances of +55% and +80% respectively).

Financial constraints remained elevated as factors limiting investment for Consumer Services firms. Concerns about a shortage of internal finance (+28%), inability to raise external finance (+16%), and cost of finance (+14%) are expected to limit Consumer Services firms’ capital expenditure authorisations in the coming year, with balances in all three measures remaining above their long-run averages (the long-run averages are +22%, +9%, and +9% respectively).

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