Employment fell sharply in the service sector in the three months to August, while volumes and profitability also continued to drop, according to the latest quarterly CBI Service Sector Survey.
Optimism was mixed last quarter with business and professional services reporting a small uptick in sentiment, while the sentiment in consumer services deteriorated less sharply. This followed a record decline in business sentiment in both sub-sectors in the three months to May.
Business volumes across the sector continued to fall in the three months to August, but at a slightly slower pace.
Both sub-sectors expect the decline in business volumes to ease in the three months to November.
Meanwhile, costs per person fell at the sharpest pace in survey history in business & professional services, while costs in consumer services were unchanged. Costs across both sub-sectors are expected to return to growth over the next three months.
Prices fell across the services sector in the three months to August. Business & professional services firms expect prices to decline at a similar pace next quarter, while consumer services expect prices to fall at a slightly slower rate.
The survey also shows that profitability continued to fall in the three months to August, with both sub-sectors reporting the second most negative balance in survey history. Profits are tipped to fall further next quarter, but at a slightly slower pace across the service sector.
Services employment took a hit in the three months to August with business & professional firms reporting steep declines in headcount this quarter, at the fastest rate since May 2009. Consumer services saw employment plunge at the fastest pace on record. Next quarter, employment is set to continue to fall, but the rate of decline is set to ease slightly.
The outlook for investment intentions remains bleak with business & professional firms expecting to cut back on vehicles, plant & machinery, land & buildings and training over the next twelve months, although IT investment is expected to increase. Consumer services firms expect to cut back on investment in all categories. Companies highlighted inadequate net return and uncertainty about demand as the biggest factors weighing on investment, with uncertainty about demand at its highest since the financial crisis.
Ben Jones, CBI Principal Economist said, “This quarter has shown some worrying falls in volumes, profitability and employment for the services sector. Although the pace of these declines is expected to ease, the impact of COVID-19 remains clear, with the services sector still facing challenges in terms of demand, revenues and cash flow.
“There is also a clear divergence by sub-sector, with consumer services seeing a particularly severe hit to activity and employment. Meanwhile, although business and professional services appear to be holding up slightly better in comparison, future challenges include what our trading relationship will look like with the EU next year.
“As we head into the autumn, the UK needs a bold plan to protect jobs as the job retention scheme draws to an end, to support the services sector.”