Firms in the UK services sector became much more gloomy in the third quarter of the year as the Covid “second wave crashed”, after optimism picked up in the summer when cases were falling, the latest CBI survey has shown.
The consumer services sector was particularly downbeat, with the pandemic hitting business harder than in the business and professional services sector.
Despite the recent positive news about coronavirus vaccines, the UK’s services-dominated economy faces a tough winter with restrictions in place to try to curb infections.
Consumer service businesses such as restaurants and hotels were left disappointed by the government’s announcement yesterday that most of the country will go into strict tier two or tier three restrictions when the England-wide lockdown ends on 2 December.
The CBI’s quarterly services survey today showed that businesses were hit hard by the tiered restrictions in the three months to November.
Consumer services firms highly pessimistic
Sentiment among consumer service firms about the general business situation dropped to a score of minus 34 in the quarter, compared to minus 20 in the previous 12 months.
The figure headed back in the direction of the record low score of minus 86 recorded in the first quarter.
“The impact has been more pronounced in consumer services,” said Ben Jones, principal economist at the business lobby group the CBI.
He said they “have been hit the hardest by shifts in consumer behaviour, social distancing rules and the Autumn lockdowns”.
“But many business-facing services are also struggling from weaker demand, from recruiters and building managers to advertising firms, accountants and lawyers.”
In the business and professional services sector, sentiment dropped to minus 21 in the third quarter from plus nine in the three months to August.
The survey showed that employment dropped at a slower pace across the service sector as a whole. Yet headcount is still tipped to continue falling over the next three months, albeit at a slower pace.
Companies reported that they did not intend to invest in the coming months due to invest uncertainty about future demand.