Businesses in the UK service sector are increasingly pessimistic about the future as sales slow and costs rise, according to the Confederation of British Industry.
Optimism fell in the three months to November, following a sharp decline in August after the 23 June Brexit vote, the CBI reported on Monday.
Consumer services such as hotels, bars and restaurants have benefited from buoyant spending, including on Black Friday, but accountants, lawyers and other firms that provide services to companies said they have seen flat growth and expect sales to fall over coming months.
“Growth prospects have diminished over the past two quarters, with the share of firms expecting to expand their business in a clear minority in both sub-sectors,” the report said
The dramatic slump in the value of the pound since the EU referendum has provided some benefit to manufacturers, in the form of cheaper exports, but it has not helped the dominant service sector, which reported sharply rising costs.
In last week’s Autumn Statement, Chancellor of the Exchequer Philip Hammond announced measures such as a national investment fund to boost the UK’s ailing productivity, but some analysts have said the amount of funding pledged will make little impact.
IT spend offered one positive - it is expected to grow - but investment in buildings and machinery is set for cuts.
Business services firms, said they expect sales to fall, while consumer services companies predicted a modest wise but have been impacted by the increase in the National Living wage, which will rise further to £7.50 in April 2017.
“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,” said Rain Newton-Smith, chief economist at the CBI.
“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."
