Strong growth but little confidence in services sector, CBI survey finds

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The services sector is enjoying strong growth, but businesses are uncertain about the future, a survey shows.

In a quarterly report, the CBI found strong “output” growth across the sector. A net balance of 32 per cent of business and professional services companies said that volumes had increased in the three months to August. At 30 per cent, output also increased for the first time in three years in the consumer services industry.

Although the services sector has emerged strongly from lockdown, businesses are cautious about the future as supply shortages and rising costs weigh on confidence. A net balance of -10 per cent of consumer services businesses said that volumes would rise again in the coming quarter. Business and professional services firms were more optimistic, expecting volumes to remain stable over the coming months.

Charlotte Dendy, principal economist at the CBI, said: “It’s clear that the services sector has performed well over the three months to August, revealing strong volumes and profits growth in our latest survey as the economy reopened over the summer. However, the outlook between sub-sectors is set to diverge over the quarter ahead, with a deterioration in prospects expected in consumer services. Firms in sectors such as hotels, restaurants and travel do not expect this strength to persist into the next quarter, reflecting the pressure they continue to face.”

The CBI said that cost pressures were likely to build, having already risen at the fastest rate since February 2019 in the consumer services sector. A net balance of 13 per cent of businesses said that average selling prices had increased during the three months to August, up from -8 per cent in the previous quarter. Among business and professional services firms, average selling prices dipped slightly from 15 per cent to 13 per cent.

A net balance of 21 per cent of business and professional services companies expected prices to rise, as did 17 per cent of consumer services firms.

Strong business volumes meant that profitability among business and professional services companies grew at its fastest pace in six years. Profitability also grew within the consumer services sector, but the CBI said that prospects were likely to diverge over the coming months, with a fall in profits in consumer services and continued growth in business and professional services.

A net balance of -35 per cent of consumer services companies said that they planned to expand workforces, compared with 32 per cent in the business and professional services sector.