The August quarterly CBI Service Sector Survey was conducted between 29 July and 17 August, and covered 162 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 Business & Professional Services, balances of -22% were recorded for both the value and volume of business. This is the first fall in volume and the fastest fall in value since November 2009, when both balances were -27%. These falls disappointed expectations of growth on both measures, and firms said they regarded both the value and volume of business as well below normal (balances of -38% and -41% respectively).
Firms predict a slower rate of decline (-14%) in both the value and volume of business in the coming three months, the weakest expectations since the first half of 2009.
Cost growth per employee was a little below average, at +23% for the second successive quarter, but this was more than offset by unexpectedly strong deflation in selling prices (a balance of -16%).
Because of the faster rates of fall in prices and volumes, firms saw an unexpectedly strong decline in profitability (-38%), the fastest fall since February 2009 (-44%), and significantly below the long-term average of -4%. Firms expect profitability to fall further next quarter (-31%), the weakest expectation since February 2009 (-46%).
However, despite this tough marketplace, numbers employed in business and professional service firms grew a little (+11%) for the second successive quarter, and employment is expected to grow further next quarter (+8%).
In Consumer Services, the ongoing decline in business volumes intensified (-25%), recording the strongest fall since November 2009 (-35%). Values also fell (-15%) at a pace similar to that seen since the start of the year.
This quarter's expectations of softer falls of -10% for volume and -6% for value were exceeded (-25% and -15% respectively). Firms said that the level of activity was well below normal (-38% for both volume and value).
Expectations are that the volume of business will be flat (-1%) and the value of business will increase slightly (+7%) next quarter.
Firms saw costs per person increase (+19%), but at a rate significantly below the long-run average (+36%). Meanwhile, firms saw selling prices increase at a faster pace (+22%) than their long-run average (+14%).
Profitability weakened this quarter (-16%), but at a lesser rate than expected (-29%), with price inflation offsetting the impact of lower volumes sold. The number of people employed also fell (-8%), though more slowly than expected (-18%).
Richard Woolhouse, CBI Head of Fiscal Policy, said:
"Activity has fallen across the services sector 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.
"However, despite tough trading conditions, business and professional service firms have increased staff numbers, while employment in consumer services fell more slowly than expected."
Business and professional services firms' IT investment intentions for the year ahead (+29%) are at their highest since November 2007 (+32%). Firms cited increasing speed and efficiency as their primary investment motive (66%), and plan to raise the amount spent on IT in the coming year for the eighth successive quarter. However, a majority of firms in this category do not expect to expand their business in the coming year (a balance of -20%).
Expansion prospects are less negative in consumer services, with only a small majority saying they do not expect to expand their business in the coming year (-7%). Investment intentions in this category are for lower spending across the board, with below average balances for capital expenditure on land and buildings (-19%), IT (-8%), and vehicles, plant and machinery (-22%).
In both Business & Professional Services, and Consumer Services, uncertainty about demand was the single biggest factor likely to limit capital expenditure (63% and 45% respectively), and expansion in the year ahead (91% and 78% respectively).
