UK service sector optimism up despite rising costs

Activity in the UK's services sector picked up in the quarter to February, according to the latest survey from the Confederation of British Industry (CBI).The consumer services sub-sector, which includes hotels, bars, restaurants, travel, leisure – was mainly responsible for the increase in activity, with volumes picking up at their fastest pace since August 2015.Meanwhile, the business and professional services sub-sector, which includes accountancy, legal and marketing firms, reported that business volumes were flat.

Sentiment stabilised

The CBI’s quarterly Service Sector Survey found that optimism among consumer services firms rose for the first time since May 2016, while sentiment stabilised in business and professional services, having deteriorated over the previous two quarters.Rising costs – which are expected to result in the largest increases in a decade – are putting pressure on prices and margins across the services sector. But the report said the higher prices were unlikely to result in greater profitability."Business and professional services firms reported that average selling prices rose for the third consecutive quarter, with prices expected to rise at the fastest pace since February 2007 over the coming three months. Increases in average selling prices are also expected to accelerate in consumer services next quarter, with firms expecting the sharpest increases since February 2008,” said the CBI.

A 'less pessimistic outlook'

Rain Newton-Smith, CBI chief economist, said, “The service sector is ticking along with business volumes holding up this quarter and a less pessimistic outlook on the office and shop floor than in recent months.“Firms anticipate increasing pressure on margins over the next quarter, with the strongest expectations for price growth in ten years, making the business environment that bit tougher.“As a first step towards easing the Business Rate burden, the Chancellor should use next month’s Budget to bring forward the switch from Retail Price Index to Consumer Price Index uprating to 2018/19.”

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The survey found that, while employment continued to expand across the sector, consumer services firms’ expectations of hiring next quarter were the weakest since August 2015.Capital expenditure was predicted to hold up over the year ahead in both sectors, with investment in land and buildings, IT, and vehicles, plant and machinery expected to increase at rates in line with long-run averages."Overall, a clear majority of business and professional services firms expect to expand their business in the year ahead, with the net balance of opinion the highest since May 2015. In contrast, expectations for business expansion among consumer services firms were the most negative since May 2012, with a majority saying they did not expect to expand their business," said the CBI.For related news and features, visit our Enterprise section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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