The latest quarterly CBI Services Sector Survey has found that business conditions across the services sector continued to fall sharply in the three months to May. Across all measures, sentiment, business volumes and profitability are all declining.
Sentiment declined in both services sub-sectors. In the business and professional services sector – which includes accountancy, legal and marketing firms – optimism about the business situation fell for the fourth quarter in a row, albeit at a slower pace than in the previous quarter. Meanwhile, sentiment in the consumer services sector – which includes hotels, bars, restaurants, travel and leisure firms – fell for the third consecutive quarter.
Business volumes also deteriorated across the services sector in the quarter to May. Business and professional services saw business volumes fall at the sharpest pace since August 2012, with volumes set to decline further in the three months to August. Meanwhile, consumer services firms saw business volumes fall for the third consecutive quarter, but with volumes anticipated to grow slightly in the quarter to August.
Meanwhile, cost pressures edged higher in both sub-sectors. Selling prices grew at a steady pace in business and professional services, while price inflation slowed in consumer services.
Against this backdrop, business and professional services firms reported that profitability plummeted – at the fastest pace since November 2011 – while consumer services reported the fifth consecutive quarter of heavily falling profits. Profitability is expected to decline in both sub-sectors over the quarter to August, albeit at slightly slower paces. Across the economy as a whole, stockbuilding is likely to have supported economic growth in early 2019. However, business surveys suggest that underlying conditions remain more subdued, as Brexit uncertainty and slower global growth bite further on activity.
“Brexit paralysis continues to take a toll on the UK’s services firms,” said Anna Leach, CBI deputy chief economist. “Profits, optimism and investment spending are falling sharply amidst a torrid operating environment.
“Politicians have wasted six critical weeks, allowing uncertainty to tighten its stranglehold on the British economy. Business and the country need Westminster to rule out No Deal, and deliver an urgent resolution to the Brexit mess.”