Demand for consumer services falters amid rising prices

waiter service sector

Demand in the services sector weakened in the three months to November, as consumer services saw business volumes fall at the fastest pace since February 2012, according to the CBI’s latest quarterly Service Sector Survey.

Business and professional services firms – which include accountancy, legal and marketing firms – reported that business volumes were stable, but volumes are expected to fall slightly in the three months to February. Meanwhile, after a disappointing performance in the quarter to November, consumer services companies – which include hotels, bars, restaurants, travel and leisure – expect volumes to edge up slightly in the three months to February.

Cost pressures eased across the services sector in the three months to November, but remained strong compared with long-run averages. Consumer services firms raised their selling prices at the fastest pace since May 2008, but with volumes falling, profitability declined for the seventh straight quarter. Prices increased at a steady pace in business and professional services, with profitability remaining flat for the fourth consecutive quarter.

Sentiment in the services sector remains mixed. Optimism among business and professional services firms improved slightly compared with three months earlier, and a majority of firms expect to expand their business over the year ahead. However, consumer services firms have become more pessimistic over the last three months, with the prospects for business expansion in the year ahead also deteriorating.

Anna Leach, CBI Head of Economic Intelligence, said: “It’s no surprise that consumer services firms are having a tough time, as people feel the pinch in their pockets from higher inflation. While weaker demand appears to have hit employment in consumer services last quarter, firms are looking to resume hiring next quarter as demand stabilises.

“Conditions for business and professional services also remain tough, and signs that firms are pulling back on their investment plans for the year ahead are concerning. Now is the time for the Government to make significant progress in the EU negotiations and agree transitional arrangements by the end of the year.”

Employment trends were mixed over the last quarter. Within consumer services, numbers employed fell at the fastest pace since August 2012, but with demand expected to stabilise next quarter, employment is expected to increase. The pace of hiring among business and professional services firms eased over the last three months, against expectations of acceleration, with employment growth expected to slow a little further next quarter.

Investment intentions have weakened a little across the services sector. In particular, spending on IT by business and professional services over the year ahead is predicted to increase at the slowest pace since May 2013, with other forms of capital spending expected to be largely stable. Investment in IT in consumer services firms is expected to hold up better, but similarly spending in other areas is predicted to remain stable.

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