Partner Article

Unexpected sales dip pushes service sector profits lower

Firms operating in the UK’s service sector saw an unexpected fall in sales in the last three months.

That’s the news from the latest CBI Service Sector Survey, which shows that profitability has been pushed lower and business levels are still below normal.

In Business and Professional Services, the volume and value of business had been expected to strengthen further after the previous quarter’s modest growth. Instead both measures fell.

The decline in business volumes, coupled with another intense price reduction, meant the growth in overall profitability that had been hoped for failed to materialise, and profits fell for the sixth successive quarter. 21% of firms said profits increased, while 48% reported a fall, giving a balance of -27%.

In Consumer Services, the volume and value of business both fell. Business volumes declined more sharply than last quarter and by more than expected, while business values dipped slightly. That led to a further drop in profitability, but the rate of decline is the slowest since February 2008. 21% of consumer services firms reported a rise in profits, and 34% a drop.

Both sub-sectors cite the level of demand or sales as the biggest constraint on future growth, with inability to raise funds also a key concern.

Ian McCafferty, CBI Chief Economic Adviser, said: “The recent weakness in the service sector is disappointing, particularly as business and professional firms had hoped conditions would strengthen this quarter. This confirms the weakness reflected in third quarter GDP data and underlines the fragility of the economic recovery.

“Consumers and businesses are continuing to cut back on spending on goods and services, and firms operating in the sector are responding by cutting prices to stay competitive.

“It is worrying that so many firms cite the ability to raise funds as a constraint on future investment and business expansion.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .