Sales volumes rise in the UK's dominant services sector in spite of profitability squeeze

Jasper Jolly
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Consumer services, such as bars and restaurants, have seen profitability shrink (Source: Getty)

The dominant UK services sector recorded the fastest growth in sales volume in more than a year in spite of heavy pressure on margins, according to a new survey of firms.

A balance of 44 per cent of big services firms surveyed by the Confederation of British Industry (CBI) reported that costs per person had risen in the last quarter, the highest since August 2008.

Yet despite the squeeze on profitability, a higher balance of firms reported an increase in volume over the past three months than at any point since May 2016. The rise in volumes was driven by business and professional services firms, including accountants, legal and marketing firms.

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Anna Leach, CBI head of economic intelligence, said: “It’s fair to say that the performance of the UK services sector is very much a mixed bag this summer. While business volumes and numbers employed have risen, the impact of higher costs is harming the profitability of firms.”

Services make up around four-fifths of the UK economy, making their prospects vital to overall growth. Rising inflation over the past year has weighed on firms’ profits as they are forced to choose between hiking prices and absorbing higher costs in tighter margins.

The latest official figures, released last week by the Office for National Statistics, showed that services expanded by 0.5 per cent in the second quarter, making up for a slump in industry and construction.

However, fears over future growth have grown as evidence UK consumers may struggle to sustain spending as real wage declines hit their peak.

Household spending grew by only 0.1 per cent in the second quarter, the ONS said, the lowest since the end of 2014.

Consumer services firms are on the front line as inflation rises. In the consumer services sector the CBI reported costs rose for a balance of 63 per cent of firms, the highest since February 2004.

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