Public-facing firms hit hardest

The UK’s services sector was hit by further falls in levels of trade in the past three months, with consumer-facing businesses such as hotel, restaurant, travel and leisure operators bearing the brunt of the pain, a survey revealed.

Consumer-facing firms said business volumes were worse than expected and had declined at their fastest rate since May 2009, while optimism was also lower than three months ago when the survey was last carried out.

Other businesses in the services sector, such as accountancy, marketing and legal providers, also saw a decline in volumes and expect further falls in coming months amid fears over the eurozone debt crisis.

The services sector accounts for about three-quarters of the economy.

CBI chief economic adviser Ian McCafferty said: “Business conditions are worsening across the UK services sector and consumer services firms in particular have been hit unexpectedly hard.

“This is yet more evidence of people with squeezed household incomes being forced to cut back on their discretionary spending.

“But spending on business and professional services also fell this quarter, with developments in the eurozone and heightened uncertainty over global prospects causing a sharp drop in business confidence.”

A balance of 41 per cent of consumer-facing businesses said volumes fell in the past three months, compared to 25 per cent when the survey was last carried out in August.

They expect the volume and value of their business to continue to deteriorate over the next quarter, albeit at a slower rate.

And a balance of 6 per cent of business and professional services firms said volumes dropped in the past three months although this was a lower rate than in the previous quarter. But a balance of 20 per cent expect declines in the next three months.

The survey suggests the number of people employed by consumer-facing businesses fell in the quarter. Business and professional services firms reported an increase in jobs, but expect to make cut-backs over the next three months.

The report comes as the Government’s independent financial watchdog, the Office for Budget Responsibility, is expected on Tuesday to slash the UK’s growth forecasts.

Meanwhile, Chancellor George Osborne is expected to reveal a raft of measures to help boost the economy such as a scheme to encourage lending to small businesses.