Service sector growth slowdown, UK

In the three months to August, service sector growth in the UK has slowed down, according to data published by the CBI Services Sector Survey this week. However, the UK’s leading independent employers’ organization says optimism continues to increase.

Growth in business volume during the three months to August eased compared to recent quarters, with profitability also improving at a slower pace. However, “this came after multi-year highs in the previous quarter,” the CBI (Confederation of British Industry) wrote.

Other indicators in the survey, which involved 215 companies, pointed to a healthier picture of activity in the service sector.

Hiring increasing strongly

The increase in the number of people employed in the business and professional services sector, including legal, accountancy and marketing companies, was the steepest since 2007. For the next quarter, the CBI expects a record high since the survey began in 1998.

Investment intentions for the next twelve months in the consumer services sector – which includes travel and leisure firms, bars, hotels and restaurants – are especially robust, with plans for spending on plant & machinery and vehicles at a record highs.

There is more concern now that business expansion during the next 12 months may be hampered by a shortage of skilled personnel.

CBI Deputy Director-General, Katja Hall, said:

“The slowing in the pace of growth and profits in the service sector reflects our view that momentum in the economy will ease in the second half of the year. But this doesn’t necessarily mean a gear change in the recovery. It’s encouraging that our service sector firms continue to feel upbeat, especially when looking ahead to the next quarter.”

“Employing more staff and planning to increase investment are positive steps in the quest for sustainable growth. However, skills shortages mean it is increasingly hard for firms to find and hire the right people. It’s important that business and government address this issue together, to put the economy of the future on the right footing.”

Key findings:

Consumer Services

• Optimism about the business situation increased steeply (a rounded balance of +43%). Forty-eight percent of companies said they were more optimistic than during the previous quarter, while 4% said they were less optimistic.

• Forty-three percent of companies said business volumes had increased compared to the previous quarter, while 17% said they were down, i.e. a positive balance of +25%.

• Seventeen percent of firms said they were employing more workers than in the previous quarter, compared to 12% who said they had fewer employees.

• Twelve percent more respondents believe they will employ more workers in the next quarter than those who predict they will employ fewer.

• A positive balance of +16% of companies plan to increase investment in buildings and land, and +29% in vehicles, plant & machinery.

• Forty-seven percent of respondents forecast stronger expansion in the coming 12 months, compared to 52% who don’t. The main factor that will probably limit expansion is the availability of clerical, professional and other staff, they say.

Business and Professional Services

• 44% of companies were more optimistic about their current business situation than in the previous quarter, while 13% said they were less optimistic.

• Business volumes grew for the fifth successive quarter. Thirty-three percent of companies said business volumes were up on the previous quarter, while 17% said they were down.

• Employment grew at its fastest pace in seven years.

• Sixty-three percent of companies forecast an increase in the rate of business during the next twelve months, while 36% don’t. Problems in finding suitable personnel is cited again as a factor likely to limit expansion.