|
News Index
Next
Previous
Companies providing business and professional services are achieving rapid levels of growth and profitability while firms offering consumer services continue to grapple with falling business volumes and demand, according to the latest CBI Service Sector Survey.
For the second consecutive quarter, professional services firms such as property, management and legal services, have seen both the value and volume of their business grow at the fastest rate since the quarterly survey began in November 1998.
This has delivered the fastest recorded quarterly growth rate in profitability of these firms for the second survey in a row, along with the biggest rise in optimism since May 2004.
By contrast, conditions have worsened for consumer services like leisure, personal care, hotels and bars, where negative growth has hit both volume and value of business over the past three months.
Businesses most affected by falling consumer spending on services are those in leisure and personal care. These include cinemas and leisure centres as well as betting shops and beauticians. At a time when consumers are faced with rising household bills and tightening their belts, consumers are spending less on social activities.
Consumer services firms
Hopes of growth in the value of business have been dashed with a balance of minus 17% seeing their value of business decline over the last three months.
Expectations for the next quarter are even lower, at a balance of minus 19%.
Consumer businesses reported the first decline in volumes since November 2003, with a balance of minus 10%.
Firms also forecast a decline for the next quarter for the first time since August 2003.
Profitability took a turn for the worse (a balance of -15%) having remained relatively flat since February last year. The last time profits were squeezed to such an extent was August 2003 (a balance of -27%) and with cost increases expected by an increasing number of firms, pressure on the sector’s bottom line looks set to continue unabated.
It is three years since optimism about the general business situation has faded at such a pace (-30%) and the fourth successive quarter in which consumer services firms' optimism has been in the negative.
The number of people employed in consumer services fell at the expected rate over the last quarter (a balance of -16%), a decline for a second successive quarter.
Firms are however more optimistic about the next three months, when they expect employee numbers to stabilise.
For the second quarter running, the only increase in investment expected over the next year in consumer services is in IT - a balance here of 23% is greater than last quarter (11%).
Elsewhere, cuts in spending are expected on land and buildings (-13%) and on vehicles, plant and machinery (-12%).
When asked for the reasons behind their investment expectations, the fewest firms since May 2002 (18%) said expansion of capacity.
Of a far higher priority to businesses was increasing their efficiency and exploiting new technology.
Notably, expectations of expansion in the year ahead have hit their lowest level since August 2003.
The balance of minus 52% is below the long-term average and indicates current levels of pessimism in the sector.
Business and professional services firms
Growth in the value of business vastly outstripped expectations for the second
quarter running - a record balance of 41% against an expected 24%.
Expectations for next quarter remain high with a balance of 36% of firms
predicting more growth. Business volumes also grew at a rapid pace.
A balance of 44% reported an increase in the last three months and 42%
anticipate further growth over the coming period. Continued strength in business
volumes has combined with a slower rise in costs and the first increase in
selling prices since May 2001 to drive quarterly profitability growth to another
high - a net balance of 23%.
Even faster growth is predicted for next quarter (a balance of 27%). Optimism
about the general business situation improved by more, compared with three
months earlier, than at any time since May 2004 (a balance of 22%).
"Consumers think twice about the services they choose"
Commenting on the results of the survey, Mark Byers, partner at Grant Thornton, stated: "The overall increase in the cost of living, as a result of higher utility bills and petrol prices is eating into UK disposable income and making consumers think twice about the services they choose to spend their hard-earned cash on.
"Last year, consumers were wary of spending on big ticket items. Today it's the definition of 'big' that is reducing and putting a strain on some medium-cost services within the personal care and leisure sectors in particular."
"No suprise"
Ian McCafferty, the CBI's Chief Economic Adviser added: "The increasing
divergence we are seeing in the services sector comes as no surprise. The burst
of increased retail spending around Christmas did not endure and we can see the
same sluggishness spreading to other areas of the economy previously more
immune, such as consumer services.
"Higher household bills are now making their impact well and truly felt on those
companies offering leisure and entertainment services.
"Business services, on the other hand, are more resilient as well as benefiting
from buoyant global activity. Firms across the economy will still spend on
advice and equipment to boost efficiency when times are tough, sometimes all the
more so."
Source:
RedAlert
|
