Services sector prices to rise at fastest pace in close to a decade

RISING costs are expected to fuel the fastest increase in prices charged by UK services firms for about a decade, writes Ian McConnell.

The CBI’s latest survey of the sector shows business and professional services firms’ expectations of increases in their average selling prices in the coming quarter are at their highest since February 2007.

Meanwhile, expectations of price rises among consumer services firms are at their highest since February 2008.

In spite of plans to increase prices, both services sub-sectors expect to see declines in profitability in the coming quarter.

Various surveys have shown the tumble in the pound in the wake of the Brexit vote has fuelled UK companies’ costs, leading to increases in their prices. And annual UK consumer prices index inflation had by January surged to 1.8 per cent, from 0.3 per cent last May ahead of the vote to leave the European Union.

The CBI survey shows overall business volumes were flat for business and professional services firms in the quarter to February. However, consumer services firms posted their fastest increase in business volumes since August 2015 during the quarter.

The survey shows optimism fell only slightly in the business and professional services sub-sector in the quarter to February. This followed three consecutive quarters of more negative sentiment.

Optimism in the consumer services sub-sector showed a modest increase in the three months to February, following two consecutive quarters in which sentiment had deteriorated.

Both the business and professional services and consumer services sub-sectors increased employment during the three months to February.

Business and professional services firms cited uncertainty about future demand and sales as the factor most likely to limit capital expenditure.

CBI chief economist Rain Newton-Smith 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.”