The Courier & Advertiser (Fife Edition)
Rising costs hit profitability of services sector
Business activity in the services sector expanded this summer but cost pressures hit profitability, according to a survey published today by the Confederation of British Industry.
The quarterly CBI Services Sector Survey showed that in the three months to August, firms in the business and professional services sector — which includes accountancy, legal and marketing firms — saw growth in volumes ease. The pace is expected to slow further in the three months to November.
After a sharp decline in the three months to May, businesses in the consumer services sector – which includes hotels, bars, restaurants, travel and leisure firms – saw growth. Demand for consumer services is expected to increase a little further next quarter.
Profitability in both subsectors failed to improve as cost pressures remained elevated. Rising costs continue to feed into selling prices.
Rain Newton-Smith, CBI chief economist, said: “Although consumer services growth inched up last quarter, overall services sector growth was fairly muted.
“With cost pressures rising, services firms are not seeing any improvement in their bottom lines. The underlying challenges facing the sector are not going away any time soon.
“Demand growth is expected to remain subdued next quarter and firms seem hesitant over the prospects for expanding their businesses in the year ahead.
“They still plan to take on new workers next quarter but the confidence to invest significantly more is lacking.”
The survey showed sentiment in the services sector varied. Business and professional services firms’ optimism about the general business situation fell at the fastest pace since November 2016, while consumer services saw a modest improvement in sentiment.
Ms Newton-Smith said progress on the Brexit talks would encourage more investment. She added: “The government and Brussels need to get on with putting pen to paper on a jobs-first transition period and agreeing a new relationship between the UK and the EU that puts people’s livelihoods above politics.”