Falling profits and higher costs hit service sector confidence - CBI

Business confidence continued to falter across the UK service sector, a survey published on Monday showed, as higher costs weighed heavily.

According to the latest quarterly CBI Service Sector Survey, cost pressures remained elevated while profits continued to fall throughout the sector.

In business and professional services, a net balance of 58% reported strong cost pressures, with 63% expecting costs to continue growing in the next three months. Profitability, meanwhile, dropped for the fifth consecutive quarter, with a balance of -27%, a noticeable widening on November’s -11%.

That hit business sentiment, although the balance of -20% was an improvement on the previous quarter’s -55%.

In consumer services, meanwhile, optimism about the business situation was -18%, compared to November’s -48%. Profits also fell for a fifth consecutive quarter, with a balance of -48%, while cost growth accelerated in the three months to February, with a balance of 73%, against the previous quarter’s 57%.

Charlotte Dendy, head of economic surveys at the CBI, said: "There’s no doubt the services sector continues to face tough times, not least those dependent on consumer spending power during a period of high inflation and rising interest rates.

"Profitability is falling and costs are rising, which is denting many business investment plans and hitting business confidence across the sector."

The survey was based on responses from 377 services firms and was carried out between 27 January and 14 February.

A balance is the weighted difference between the percentage of firms reporting an increase and those reporting a decrease.