Rising costs hit profits in UK services sector, CBI says

Rising costs have hit profits in the UK’s services sector, which makes up the majority of the economy.

During the three months to August profitability was flat in both the professional services sector, which includes accountancy, marketing and law firms, and the consumer services sector – which includes hotels, bars, restaurants, travel and leisure firms, the Confederation of British Industry (CBI) said.

However, after a sharp decline in the three months to May, business volumes picked up a little in the latest quarter.

Both sub-sectors have seen elevated costs, which have fed into selling prices, causing increased inflation in both sub-sectors.

Sentiment in the services sector varied, with business and professional services firms’ optimism about the general business situation falling at the fastest pace since November 2016, while consumer services saw a modest improvement in sentiment.

The broader economic outlook remains fairly subdued, with UK GDP growth held back by weak household income growth and the impact of Brexit uncertainty on investment, the CBI said.

Rain Newton-Smith, CBI chief economist, said: “Although consumer services growth inched up last quarter, overall services sector growth was fairly muted. And with cost pressures rising, services firms are not seeing any improvement in their bottom lines.

“The underlying challenges facing the sector are not going away any time soon. Demand growth is expected to remain subdued next quarter and firms seem hesitant over the prospects for expanding their businesses in the year ahead. They still plan to take on new workers next quarter, but the confidence to invest significantly more is lacking.

“Above all, the government and Brussels need to get on with finalising a withdrawal agreement, putting pen put to paper on a jobs-first transition period and, finally, agreeing a new relationship between the UK and the EU that puts people’s livelihoods above politics.”