UK service sector optimism dims on sluggish spending - CBI

UK services businesses have become less optimistic in the last month as sluggish consumer spending and rising wages place a strain on the sector and its profits, according to a survey published on Monday.

The Confederation of British Industry said in its monthly report on the sector that optimism about the business situation dropped to a balance of -19%, as 18% of firms said they were more optimistic than three months ago, whilst 38% said they were less optimistic.

Business and professional services firms reported that business volumes barely increased and are expected to fall slightly next quarter, while consumer services companies saw business volumes grow modestly, with expectations for faster growth in the next three months.

Investment intentions were mixed, with the sector planning to cut back investment in land and buildings, vehicles, plant and machinery, although overall capital expenditure on IT should rise at a robust pace.

Average selling prices rose at a balance of +8% and are expected to rise a little further next quarter, said a balance of +5.

“Optimism among firms in the UK service sector has fallen this quarter, as rising costs and sluggish volumes of business have led to a drop in profitability," said Rain Newton-Smith, the CBI's chief economist.

“We’re also seeing diverging fortunes in the service sector. Business and professional services expect to see weaker growth in volumes next quarter while the resilience of the British shopper is boosting the outlook for consumer services.

“But employment growth remains strong and service sector firms are looking to hire in the months ahead. Many firms still plan to invest in IT, but uncertainty over future demand could act as a restraint."