Partner Article

Service sector shows signs of stabilising

The UK service sector is showing signs of stabilising, research from the CBI suggests.

Firms across both service sub-sectors expect business activity to pick up in the next three months, accompanied by an improvement in profitability.

The quarterly May CBI Service Sector Survey was conducted between April 27 and May 16, and covered 167 firms.

Respondents were divided into business and professional services, such as accountancy, legal and marketing firms, and Consumer Services, such as hotels, bars and restaurants, travel and leisure.

In Consumer Services, the fall in business volume and value continued, but there was a further slackening in the pace of contraction, with volumes and values falling more slowly than expected.

A balance of -11% of firms stated that volumes fell, which was a smaller fall than expected, and the slowest pace of decline since February 2011.

The decline the value of business, also showed compared with the previous quarter (-19%), and exceeded expectations (-12%).

Firms expect both the volume and value of business to increase in the coming quarter, and the balance of firms expecting volumes growth is in positive territory for the first time since August 2010.

The number of people employed in consumer services fell for the tenth consecutive quarter, although less rapidly than in the previous quarter, and less than expected.

In business and professional services, business volumes declined moderately over the past three months, but faster than expected.

Firms have positive expectations for both the volume (+4%) and value (+7%) of business in the coming three months, for the first time in a year.

The combination of weaker deflation in selling prices and falling volumes left profitability flat in the three months to May (-1%), slightly better than expected (-6%).

Ian McCafferty, CBI Chief Economic Adviser, said: “Despite the continued uncertainty emanating from Europe, there are some signs that conditions in the UK service sector are beginning to improve slightly.

“In Consumer Services firms, confidence is stabilising, and firms expect a somewhat better performance into the summer.

“The rate of decline in business volumes has slowed further, and growth is predicted next quarter for the first time since August 2010.

“Business and professional services firms saw similar rates of decline in business volumes this quarter as last, but are also predicting a return to growth next quarter for the first time in a year.”

Investment intentions weakened for consumer services firms, as less is expected to be spent on land and buildings, vehicles and plant and machinery.

However, intentions improved for business and professional services firms, who plan to spend slightly more in the year ahead on IT and vehicles, plant and machinery, than they did last year.

Firms in both sub-sectors reported uncertainty about demand and sales as the single biggest constraint on capital expenditure authorisations, with above-average balances in consumer services and in business and professional service, while replacement remained the strongest investment motive in both sub-sectors.

This was posted in Bdaily's Members' News section by Tom Keighley .