Service sector optimism holds up despite cost pressures - CBI

Business optimism across the UK service sector held up in May, a closely-watched industry survey showed on Tuesday, despite ongoing pressure on both costs and profits.

According to the latest quarterly service sector survey from the CBI, cost pressures continued to build in business and professional services - with the net balance rising to 61% from 58% - while profitability fell for the sixth consecutive quarter.

There was also a sixth consecutive fall in profitability in consumer services, and cost growth also accelerated, to 81% from 73%, the second fastest rate of growth on record.

Both sub-sectors saw business volumes decline during the quarter, although the fall was more sharply felt in consumer services.

But volumes were forecast to return to growth in business and professional services in the next quarter, and to stabilise in consumer services

And overall, sentiment about the general business situation was broadly unchanged in business and professional services in the three months to May, with a net balance of -2%. It was also largely unchanged in consumer services, with a net balance of 3%.

Charlotte Dendy, head of economic surveys and data at the CBI, said: "It is encouraging that the quarter ahead looks brighter for services firms’ trading conditions. Business volumes are set to return to growth in the next three months, underpinning expectations or stronger employment growth and improved investment intentions.

"However, rapid cost growth continues to squeeze margins and adds to mounting evidence that underlying inflationary pressures remain strong."