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Demand for business services plunge, CBI reports

UK service sector shows decline for first time since 2009 as spending on accountancy, legal and marketing work falls sharply

Britain’s services sector, already suffering from waning consumer confidence, has suffered another jolt following a surprise drop in spending on accountancy, legal and marketing work.

The CBI’s quarterly service industry survey showed a sudden reversal in activity in the business and professional services sector, forcing the first decline across the entire services sector in nearly two years. Profitability in business and professional services also fell steeply, by 38%, with a strong expectation that it will fall again in the next three months.

It compounded the performance of consumer services – which includes restaurants, hotels and travel companies – where activity fell by a quarter, the strongest decline since November 2009. The sudden slide in business and professional services meant that activity has fallen across the entire services sector as a whole for the first time since November 2009.

“This quarter we’ve seen more evidence of the ongoing decline in consumer services spending, as people with increasingly squeezed household incomes are forced to cut back their discretionary spending. What is new, and was not expected this quarter, is that spending on business and professional services also fell, something not seen since November 2009,” said the CBI’s head of fiscal policy, Richard Woolhouse.

There were some hopeful signs in the poll of 162 firms taken in the first two weeks of August, with the number of people employed in consumer services falling at a slower-than-expected rate and employment in business and professional services rising.

Meanwhile, a lobby group for UK manufacturers called for greater competition in the banking industry after warning of a logjam in lending to industrial businesses. The EEF said a survey of 277 companies showed that the availability of credit had improved – but fees on existing lending are not improving while the rates on existing borrowing are going up.

“While conditions are slowly heading in the right direction the overall picture remains far from being as supportive as we’d like,” said Lee Hopley, the EEF’s chief economist. “With global clouds of uncertainty providing enough reasons for firms to hold off investment this is the time we can least afford to add any further constraints through tight conditions on accessing finance.”

The EEF is urging the government to stimulate competition in the banking sector before the publication of the report from the independent banking commission, chaired by Sir John Vickers.

“A lack of competition in the SME [small and medium-sized business] lending market is still keeping costs too high,” said Hopley.

Manufacturing has been singled out by the Chancellor as a driver for the UK’s economic recovery but has struggled with that mantle. Manufacturing output fell 0.4% in June compared with the previous month. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds