By Max Clarke
The UK’s services sector declined at its fastest rate since late 2009, prompting fresh concerns about the state of the UK recovery.
Business and professional services reversed the slight gains they had been making since 2009, contracting unexpectedly, as consumer services made similar contractions, the Confederation of British Industry (CBI) today revealed.
“Activity has fallen across the services sector for the first time since November 2009,” Richard Woolhouse, CBI Head of Fiscal Policy.
“This quarter we’ve seen more evidence of the ongoing decline in consumer services spending, as people with increasingly squeezed household incomes are forced to cut back their discretionary spending.”
The August quarterly CBI Service Sector Survey was conducted between 29 July and 17 August, and covered 162 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 Business & Professional Services, balances of -22% were recorded for both the value and volume of business. This is the first fall in volume and the fastest fall in value since November 2009, when both balances were -27%. These falls disappointed expectations of growth on both measures, and firms said they regarded both the value and volume of business as well below normal (balances of -38% and -41% respectively).
Firms predict a slower rate of decline (-14%) in both the value and volume of business in the coming three months, the weakest expectations since the first half of 2009.
Cost growth per employee was a little below average, at +23% for the second successive quarter, but this was more than offset by unexpectedly strong deflation in selling prices (a balance of -16%).
Because of the faster rates of fall in prices and volumes, firms saw an unexpectedly strong decline in profitability (-38%), the fastest fall since February 2009 (-44%), and significantly below the long-term average of -4%. Firms expect profitability to fall further next quarter (-31%), the weakest expectation since February 2009 (-46%).
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