Decline in optimism in services sector as profitability falls

The service sector saw a decline in optimism in the three months to November, although the fall was less sharp than in the previous quarter.

The CBI's latest quarterly Service Sector Survey of business and professional services firms – which includes accountancy, legal and marketing firms – reports that sluggish consumer spending and rising wages have dented profits and optimism among services companies in the past three months.

Business volumes in professional services have risen just 2 per cent, and are expected to fall by 4 per cent in the next quarter. Almost a quarter of companies said their overall profitability was up on the previous three months, while 41 per cent said it was down. 38 per cent of those surveyed said they were less positive, compared with 18 per cent who were more optimistic.

Commenting on the findings, Rain Newton-Smith, CBI Chief Economist, said: "Optimism among firms in the UK service sector has fallen this quarter, as rising costs and sluggish volumes of business have led to a drop in profitability.

“We’re also seeing diverging fortunes in the service sector. Business and professional services expect to see weaker growth in volumes next quarter while the resilience of the British shopper is boosting the outlook for consumer services.

“But employment growth remains strong and service sector firms are looking to hire in the months ahead. Many firms still plan to invest in IT, but uncertainty over future demand could act as a restraint.

“The Autumn Statement will have offered some comfort to businesses as the Government looks to build on the UK’s economic strengths, with an Industrial Strategy that helps deliver growth across the country.”

In this rapidly changing economic landscape, it is essential that all business owners and managers be aware of income and expenditure by keeping proper records and monitoring trends and patterns. Profit and loss accounts will help you understand how your business is progressing, as well as alert you to any potential issues which might arise, giving you ample warning to rectify the problems or make the necessary adjustments to keep your business on track and successful.

At Beavis Morgan, our specialists to SMES are available to provide general business advice and to structure your business for tax. We can also assist with long and short term forecasts, budgets, business plans, sensitivity analysis, and calculating and checking compliance with covenants.

Contact Steve Govey or your usual Beavis Morgan Partner for further information about how we can assist you and your business.