Signs of stabilisation in UK service sector


By Daniel Hunter

Business conditions in the UK service sector are showing signs of stabilising, the CBI said today (Sunday).

Firms across both service sub-sectors expect business activity to pick up in the next three months, accompanied by an improvement in profitability.

Confidence, too, is stabilising, after the sharp falls of the last nine months.
The quarterly May CBI Service Sector Survey was conducted between 27th April and 16th May, and covered 167 firms. Respondents are divided into Business & Professional Services, such as accountancy, legal and marketing firms, and Consumer Services, such as hotels, bars and restaurants, travel, and leisure.

In Consumer Services, the fall in business volume and value continued, but there was a further slackening in the pace of contraction, with volumes and values falling more slowly than expected.

A balance of -11% of firms stated that volumes fell, which was a smaller fall than expected (-21%), and the slowest pace of decline since February 2011 (-11%).

The decline in the value of business (-8%) also slowed compared with the previous quarter (-19%), and exceeded expectations (-12%).

Firms expect both the volume and value of business to increase in the coming quarter. The balance of firms expecting volumes growth is in positive territory (+12%) for the first time since August 2010 (+9%), while the expected rate of value growth (+22%) is the highest since November 2007 (+29%).

Total costs per employee rose sharply (+41%), and at a faster rate than expected (+19%), while average selling prices also rose (+15%), in line with their long-run average, but by less than expected (+28%).

Stronger selling prices, combined with the slowing decline in business activity, led to Consumer Services firms seeing the smallest decline in profitability (-6%) since November 2010 (-3%), a better performance than expected (-17%). Firms predict that the decline in profitability will come to an end... continued on page two >


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