Unexpected sales fall in service sector

The UK’s service sector saw an unexpected fall in sales in the last three months, according to the latest CBI Service Sector Survey.

The quarterly research, conducted between 28 October and 11 November, covered 179 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 Business and Professional Services, the volume and value of business had been expected to strengthen further after the previous quarter’s modest growth. Instead both measures fell. The decline in business volumes, coupled with another intense price reduction, meant the modest growth in overall profitability that had been hoped for failed to materialise, and profits fell for the sixth successive quarter. 21% of firms said profits increased, while 48% reported a fall, giving a balance of -27%.

In Consumer Services, the volume and value of business both fell. Business volumes declined more sharply than last quarter and by more than expected, while business values dipped slightly. That led to a further drop in profitability, but the rate of decline is the slowest since February 2008. 21% of consumer services firms reported a rise in profits, and 34% a drop. That gives a balance of -13%.

Looking ahead to the next three months, firms in consumer services are more optimistic than those in business and professional services. They expect to increase sales, profits and employment in the next quarter, and for the first time since May 2007 they expect to expand their business in the coming year. As a result, optimism about the business situation among consumer services companies has risen at the fastest rate (a balance of +16%) since February 2007 (+20%).

For firms operating in business and professional services, conditions look set to remain challenging. In the next quarter sales, profits and employment are expected to decline again, but at a slower rate.

Both sub-sectors cite the level of demand or sales as the biggest constraint on future growth, with inability to raise funds also a key concern.