Services sector finds the going gets harder

THE services sector failed to build on signs of a recovery seen earlier this year, with sales disappointing expectations during the past three months, research shows.

Both the volume and value of business carried out by firms involved in consumer services, such as hotels, restaurants, travel and leisure, fell during the three months to May, according to business group the Confederation of British Industry.

Just over a third of companies in the sector reported a fall in business volumes, with only 14 per cent seeing a rise, while a balance of five per cent of firms reported a drop in the value of business.

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The fall came despite firms seeing a slight rise in business levels during the previous quarter, and expectations that the increase would continue.

The overall profitability of consumer services firms fell to its lowest level since August last year, with 34 per cent more companies reporting a drop in profitability than those that saw a rise.

This was partially driven by a slower-than-expected rise in prices, coupled with a faster-than-expected increase in costs.

Business and professional services firms, such as accountancy, legal and marketing groups, did not fare much better, with business volumes remaining unchanged during the period, while the value of business rose only slightly, with a balance of eight per cent of companies reporting an increase.

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The profitability of firms in the sector has now fallen consistently for two years.

The prices companies charged for their services continued to drop, although they did so at the slowest rate since November 2008, but their costs increased at the fastest rate since August of that year.

Ian McCafferty, CBI chief economic adviser, said: "These figures for the UK service sector show there is some way to go before the recovery gets up to speed, and firms selling services to the consumer are finding it tougher than those in business and professional services.

"Consumers are still being cautious about spending on discretionary activities like eating out in restaurants or bars, and leisure and personal services, such as haircuts or beauty.

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"But it is interesting to see that travel services firms are doing better, which suggests people still want to take a well-earned break.

"Firms selling business and professional services are feeling slightly more optimistic than three months ago, but are still finding it hard to make a profit, as prices continue to decrease and costs accelerate."

He added that these firms no longer expected business volumes to grow in the next three months.