CBI: caution hits service sector firms

SERVICE sector firms saw their profits and sales tumble during the first three months of the year, according to a quarterly survey from the CBI published today.

In a further disappointment for the sector, which has struggled to recover after the recession, the survey shows that firms selling services to consumers saw their volumes of sales fall in the last quarter. Expectations of future rises were pessimistic.

A net 21 per cent of businesses providing consumer services saw a fall in the volume of business while a net five per cent suffered a drop in value.

The overall profitability of firms selling services to consumers fell, with a balance of -34 per cent, the most negative since August last year.

Sales volumes in business and professional services remained flat but the value of business rose slightly, with a balance of +8 per cent.

The profitability of firms selling business and professional services has now fallen consistently for two years, with a balance of -18 per cent saying their profitability declined in the past three months, compared to the small increase expected.

Service sector firms are also not optimistic about the year ahead. Expansion plans for the coming year are quite muted. Domestic competition was felt likely to limit business expansion in the coming year by almost half of all of consumer services firms and 60 per cent of business and professional services firms, the highest since May and August 2007 respectively.

Ian McCafferty, CBI chief economic adviser, said: “These figures for the UK service sector show there is some way to go before the recovery gets up to speed, and firms selling services to the consumer are finding it tougher than those in business and professional services. Consumers are still being cautious about spending on discretionary activities.”