Business sentiment and activity dropped further across the services sector in the quarter to November, according to the CBI’s latest Service Sector Survey.
Business volumes dropped sharply across both sub-sectors, marking over a year of declines.
Meanwhile, average selling prices were unchanged despite cost growth remaining elevated. Notably, this is the first time the sector hasn’t witnessed growth in selling prices since the first half of 2021.
As a result, service sector profitability and employment fell sharply, particularly in consumer services.
Looking ahead, service sector firms are set to see volumes decline again over the next quarter, albeit at a slower pace in business and professional services. Cost growth is expected to remain broadly the same and consequently, selling price growth is expected to return in the three months to February. Nevertheless, with the rise in costs expected to outpace selling price inflation again, profits are expected to fall significantly – albeit at a slower pace in business & professional services.
With conditions remaining challenging in the services sector, firms remain pessimistic regarding their plans for investment over the year ahead. All investment categories are expected to be cut back in both sub-sectors, except for IT in consumer services where plans are set to remain unchanged. Uncertainty about demand remains the main limitation to capital spending across the services sector, while financial concerns have grown, particularly in consumer services.
The November Service Sector Survey was in field before the Budget.
Charlotte Dendy, Economic Surveys and Data Manager, CBI, said, “Our latest survey reveals that the services sector is still under significant pressure. Business sentiment and activity have continued to fall, while rising costs are outstripping price growth, continuing to squeeze margins.
“As a result, profitability has dropped sharply once again. Looking ahead, businesses expect little near-term relief, with uncertainty about demand and persistent cost pressures set to constrain future hiring and investment plans.
“Last week’s Budget will add further costs to businesses, while also hampering business investment and profitability, notably with the addition of NICs to salary sacrifice pension contributions and failure to address punitive business energy costs. The government must now leverage enterprise expertise to unlock economic growth. This starts by applying the effective model of compromise and partnership achieved on the Employment Rights Bill, by collaborating directly with business to boost growth.”
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