Wednesday 8th February 2012 10.54am
Post your Events Consumer Services Recovering While Business Services Remain Under Pressure
Firms operating in the UK’s service sector saw volumes of business stabilise in the last three months, according to the latest CBI Service Sector Survey. However, the situation differed between the Consumer Services sub-sector, where there was a slight improvement in business, and the Business and Professional Services sub-sector where conditions were more difficult.
The quarterly research, conducted between 27 January and 10 February, covered 180 service sector firms. They are divided into Business and Professional Services, such as accountancy, legal and marketing firms, and Consumer Services, including hotels, bars and restaurants, travel and leisure.
In Consumer Services, the value and volume of business both rose slightly. Over the last three months, the balance for value of business was +10 per cent, the highest since November 2007, and for volume of business was +7 per cent, the highest since August 2007. Overall profitability was little changed, with a balance of -2 per cent as costs rose, though this figure was the most encouraging since November 2007, when it was +27 per cent.
There were rises in selling prices in Consumer Services, but these were probably caused in large part by the increase in VAT at the start of the year. 38 per cent of companies said prices rose, and 8 per cent said they fell, giving a balance of +30 per cent, the highest since May 2008. Prices are expected to rise further over the next three months by a balance of +37 per cent of companies.
In Business and Professional Services, the value and volume of business were little changed on the previous three months, which was better than companies expected. 24 per cent of companies said the value of business rose, while 26 per cent said it fell, giving a balance of -2 per cent. For volume of business, 29 per cent it rose, and 30 per cent said it fell giving a balance of -1 per cent.
However, prices, and therefore profitability, fell in the sub-sector. The balance for average selling prices was -21 per cent over the past three months, and for overall profitability was -13 per cent.
Companies appear to be cutting back on staffing numbers. In Consumer Services, employment fell compared with the previous three months, with a balance of -28 per cent. In Business and Professional Services the figure was -25 per cent.
Sarah Green, Regional Director, CBI North East, said:
“The survey shows that business activity has stabilised across the service sector, however the fortunes of the Consumer Services and the Business and Professional Services differ, with firms selling to households doing slightly better over the past three months. Prices in the Business and Professional Services sub-sector have continued to fall, reducing profits, and making conditions tougher.
“Overall, these figures are consistent with our view that the economy is recovering slowly, but that we will have to wait a while before growth picks up.”
On balance, companies in both sub-sectors are more optimistic about the business situation than they were three months ago. However, more firms in Consumer Services plan to expand their business than in Business and Professional Services, where expansion plans are subdued.
Service sector firms are still concerned about the strength of demand over the year ahead as a constraint on business expansion, and their ability to raise funds also remains a key barrier to growth.
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