Shock decline in profits for services firms

HOPES that Britain&rsquo;s services sector would pull the economy out of recession may be overdone, according to the latest Service Sector survey from the Confederation for British Industry (CBI), published today ahead of the sector&rsquo;s purchasing manager&rsquo;s index due on Thursday. <br /><br />Both professional and consumer services firms saw an unexpected drop in volumes and value in the three months to November, pushing the sector&rsquo;s profitability even lower and keeping business levels well below normal, the CBI said. <br /><br />Ian McCafferty, CBI chief economic adviser, said: &ldquo;The recent weakness in the service sector is disappointing, particularly as business and professional firms had hoped conditions would strengthen this quarter.&rdquo;<br /><br />A net 27 per cent of business and professional services firms saw profits fall while consumer services firms saw business volumes decline more sharply than last quarter and by more than expected, while business values dipped slightly. A net 13 per cent of firms saw profits fall over the surveyed period. <br /><br />Thursday&rsquo;s PMI is expected to show continued growth in business activity thanks to a stabilisation in the housing market and consumer spending bottoming out. <br /><br />Economists nonetheless think the sector will grow at a slower pace than has been seen in previous months. However, a rebound in the fourth quarter is expected by City analysts. <br /><br />Consumer services firms are also much more optimistic about the next three months than those in business and professional services. Optimism about the business situation among these companies has risen at its fastest rate since February 2007. <br /><br />But for business and professional services firms, profits and employment are still expected to decline, hit by a lack of demand.