A dip in confidence across the services sector will limit growth heading into the new year, according to a wide ranging business survey.
High demand going into the pre-Christmas period for leisure, hotels and professional services was unable to maintain the buoyant confidence levels seen earlier in the year, the CBI said in its quarterly report on the sector.
A price freeze will also dent the profitability of business and professional services as intense competition limits inflationary pressures, it added.
But the overall growth of the sector was assured, it said, following a long period of expansion and healthy employment numbers.
Rain Newton-Smith, CBI director for economics, said there were encouraging signs that firms had increased investment in IT and skills, though skills shortages were beginning to limit the room for many firms to expand.
She said: “Growth across the services sector is expected to continue into the new year. And it’s good to see investment spending in IT at near record levels.
“But skills shortages are starting to bite, putting more of a brake on investment and future growth in consumer services. Therefore the spending rise in training in the sector is particularly encouraging.”
Many of Britain’s key industries have reported skills shortages over the last six months as the unemployment register has shrunk and employment levels hit all-time highs.
Ministers have urged employers to embark on long-term training schemes and adopt apprenticeships to overcome skills shortages. Business secretary Vince Cable has supported industry-backed apprenticeships , but with only limited success.
Expenditure on staff training rose to its highest level for 15 years, and is expected to remain strong. Training costs are also expected to increase in the business and professional services sector.
The services sector accounts for about three-quarters of GDP and has proved to be more resilient as a source of growth than the manufacturing or construction sectors since 2012. Strong growth this year began to tail off in the summer and was then hit hard by the stock market slump in October amid concerns that a decline in demand from the eurozone and a faltering world economy would limit growth.
The CBI splits the sector into a consumer services division and a section for business and professional services. In a very volatile index, optimism among consumer services firms was at its lowest since February 2013, when the balance was +6%. This quarter 32% of firms were more optimistic against 6% who were less optimistic, leaving a balance of +26%.
The survey found that 36% of firms reported business volumes up, compared with 5% saying they were down in the last quarter, a slight increase on the previous three months’ balance of +25%.
Thirty-nine per cent of firms said the number employed had risen, with 11% saying it was down, leaving a balance of +28%, significantly up on the last quarter (+5%). Expectations for the next three months remain strong (+25%)
Employment increased at its fastest pace for seven years in the business and professional sector, which includes accountancy, legal and marketing firms. The number of employees in the consumer services sector, which includes hotels, bars, restaurants, travel and leisure firms, also increased.
Expenditure on training rose at its fastest rate since May 1999, when the balance was +41%. This past quarter 41% said spending on training was up, compared with 2% who said it was down, leaving a balance of +39%.
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