Growth in service sector activity adds to the air of optimism

Business and professional services saw weaker growth than expected, but consumer services experienced a sharp turnaround in business volumes.

The business and professional service sector, which includes accountancy, legal and marketing companies, saw activity staying broadly flat over the quarter.

While overall profitability fell, optimism regarding the business situation rose at its fastest rate since February 2010, as expectations for the next quarter rose.

Consumer services, such as hotels, bars, restaurants and the travel and leisure industries, saw business volumes rise at their fastest pace since August 2007.

As a result, overall profitability of consumer businesses rose for the first time since November 2007.

This was despite employee costs continuing to increase.

However, there are concerns among firms over a shortage of internal finance and an inability to access external funding.

The survey of 170 companies revealed expectations of a firm quarter ahead, with business and professional services expecting solid growth in both the value and volume of business.

Consumer services firms predict that growth in business will be sustained and profits in both sectors are expected to rise strongly.

Stephen Gifford, the CBI’s director of economics, said: “There appears to be a sense of growing confidence in the service sector.

“We’ve seen some turnaround in activity this quarter, and a more positive outlook for the next.”

He said that while activity has been pretty flat for business and professional firms, the outlook is much stronger.

“What’s promising is that consumer services have seen growth in activity, and expect this to continue pointing to a greater willingness from people to go out and spend.

“But there is concern around getting access to finance, so it’s vital that growing firms look at the full range of funding options out there on the market.

“Conditions remain tricky, with consumers still grappling with a squeeze on real incomes, and business confidence vulnerable to any adverse developments in the global economy,” he added.

The Service Sector Survey was conducted between April 26 and May 15 – with 108 business and professional firms and 62 consumer services firms responding.