The service sector in the UK has witnessed a decline in optimism in the three months to November 2016, the Confederation of British Industry (CBI) revealed. This was based on the UK business organisation's latest quarterly service sector survey, which was conducted between 28 October and 14 November 2016 and received responses from 115 business and professional services firms and 44 consumer services firms.
According to the survey report seen by IBTimes UK, while there was indeed a decline, it was not as sharp as that seen in the previous quarter. Also, this deterioration in optimism was found to be primarily in the business and professional services segment, which includes accountancy, legal and marketing firms. On the other hand, the sentiment in the consumer services segment, which includes hotels, bars, restaurants, travel and leisure, was relatively stable.
The sentiment was related to business volumes. While business and professional services firms reported that volumes had barely increased in the period, the consumer services companies said they saw a modest growth.
With regards to business volumes for the next quarter ending February, the business services sector expected volumes to contract slightly, while the professional services sector expected it to grow.
The report also showed that there was an increase in costs per person. This paired with sluggish volumes growth had led to a sharp decline in profitability across the services sector as a whole. It was also revealed that there was a slight slowdown with regards to employment growth, while the pace of hiring was still above its long-term average.
With regards to investments, the intention of companies was found to be mixed. While firms said that they could increase spending on information technology, they said they would cut back on investment in other areas such as land and buildings, vehicles, plant and machinery.
Commenting on the report, Rain Newton-Smith, chief economist at CBI 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."