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UK professional services sector remains weak, says CBI

Anna Leach

London: Business conditions in the UK services sector remain testing, and expectations of stronger activity have failed to materialise, UK business lobbying organisation the CBI said yesterday.

Business and professional services reported further falls in business volumes and values in the three months to August, against expectations that growth would turn positive.

The latest quarterly CBI Service Sector Survey was conducted between 27th July and 15th August, with 196 firms participating.

The survey showed that in business and professional services, the rate of decline in business volumes intensified (-21%) contrary to expectations of a slight rise in volumes (+4%). This was repeated in the figures for the value of business, with a balance of -16% reporting a fall, versus positive expectations (+7%).

Optimism within business and professional services about the business situation was also lower in the three months to August (-11%) than it was three months ago (+8%).

Total costs per employee stabilised unexpectedly (+2%). However, selling prices fell at a rate close to their long-run average (-13%, compared to a long-run average of -10%) and this, combined with falling business volumes, led to an unexpected fall in profitability (-19% against expectations of +6%). Numbers employed remained stable (+3%) rather than increasing as expected (+18%).

Over the next three months, business volumes are expected to continue falling, albeit more moderately (-8%), and business values are expected to be broadly flat (-1%). Companies expect profitability to continue declining at a similar rate (-14%), with average selling price deflation expected to continue (-14%) and costs per employee projected to rise slightly (+5%). Headcount is expected to remain fairly stable over the coming quarter (+4%).

Anna Leach, CBI Head of Economic Analysis, said, "Conditions in the service sector have not improved as expected this quarter, with firms now more negative about the overall business situation than they were three months ago.

"Companies selling services to consumers continue to face challenging times, with price-cost pressures and a weak business environment squeezing profits.

"While business and professional services firms are continuing to see business volumes fall, they have also seen labour costs stabilise, helping to support headcount."

Investment intentions in both sectors remained weak this quarter. Business and professional services expect to increase their expenditure on IT (+10%), firms plan to spend less on land and buildings (-10%) and vehicles, plant and machinery (-10%).

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