By Daniel Hunter

Business activity in the service sector grew to its highest level since 2007 and confidence rose strongly, according to the CBI’s quarterly Service Sector Survey.

Business and professional services saw a particularly sharp turnaround in business volumes, while activity in consumer services picked up further.

The business and professional services sector, which includes accountancy, legal, and marketing firms, saw business volumes rise at their fastest pace since November 2007, in line with expectations. As a result, profitability recorded its strongest growth since February 2008. Looking ahead, optimism about future business reached a fifteen-year high — rising at the fastest rate since the survey began in November 1998.

Consumer services, such as hotels, bars, restaurants and the travel and leisure industries, saw business volumes rise at their fastest pace since August 2007, also in line with expectations. Business confidence grew for the fourth consecutive quarter. Profitability, however, fell unexpectedly, recording its largest decline since February 2012 as price growth failed to materialise.

The survey of 161 companies revealed expectations for a strong quarter ahead, with both sub-sectors expecting the fastest growth in value and volume of business since 2007. However, while business and professional services firms expect overall profitability to continue to grow and further strong growth in headcount, consumer services firms expect another fall in both. Investment and expansion plans for the year ahead have also diverged for the two sectors. Business and professional firms’ have their strongest expansion plans since February 2006, while consumer services firms are cautious across all areas of investment.

Stephen Gifford, CBI Director of Economics, said: “We’ve seen a further build-up of momentum in the service sector this quarter, with business and professional services firms in particular seeing a turnaround in their fortunes.

“Confidence has risen strongly across the board, and the outlook is positive in the short-term. But consumer services firms are a bit more worried about the longer-term, and have scaled back their investment and expansion plans.

“Conditions remain tricky as households grapple with the prolonged squeeze on real incomes and business confidence remains vulnerable to any adverse developments in the global economy. But, all being well, business should continue to pick up through this year and into next.”

The Service Sector Survey was conducted between 26th July and 14th August, with 97 business and professional services firms and 64 consumer services firms responding.

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