CBI reports business volume decline

THE UK services sector saw continuing declines in business volume and value in the past quarter, the CBI said today.

Consumer Services saw business conditions weaken most rapidly, suffering their fastest rate of fall in volume and value since 2009.

Business volume and value also fell in Business and Professional Services, although at a lesser rate than expected.

The quarterly CBI Service Sector Survey was conducted between October 28 and November 16, and covered 189 firms.

Respondents are divided into Business & Professional Services, such as accountancy, legal, and marketing firms, and Consumer Services, such as hotels, bars and restaurants, travel, and leisure.

In Consumer Services, the ongoing decline in business volume and value intensified. Setting those reporting declines against those achieving growth, there was a balance of minus 41% for volume and of 49% for value, far worse that expectations of minus 1% and plus 7% respectively for the period in the last survey.

Firms said that the level of activity was well below normal in both measures and optimism about the general business situation was lower than three months ago.

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The volume and value of business are now expected to decline further, but at slower rates (minus 23% and minus 17% respectively) in the next quarter.

The sharp fall in business volume, combined with flat prices and higher cost growth, caused profitability to fall sharply in the three months to November.

The number of people employed in Consumer Services also fell (with a balance of minus 6%), although the decline was slower than expected (minus11%). However, employment is expected to fall more strongly next quarter (minus 33%).

In Business & Professional Services, business volume and value fell less strongly than in the three months to August, with balances of minus 6% and minus 12% respectively (compared with minus 22% on both measures the previous quarter).

Firms said they regarded both the volume and value of business as well below normal and they were less optimistic about the general business situation than they were three months ago.

Firms predict further, faster decline in both volume and value of business (balances of mins 20% and minus 21% respectively) in the coming three months.

Again, the combination of a fall in volumes and a stronger cost-price squeeze led to a strong decline in profitability (minus 31%). Firms expect profitability to fall less quickly next quarter (minus 19%), when they predict there will be less of a cost-price squeeze.

Despite the tough marketplace of the past quarter, numbers employed in Business & Professional Services grew (plus 9%) for the third consecutive quarter, roughly in line with expectations (plus 8%). However, employment is expected to fall next quarter (minus11%).

Ian McCafferty, the CBI's chief economic adviser, 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.'