Service sector optimism wanes as costs mount

Business optimism across the UK service sector continued to slide over the last three months, an industry survey showed on Wednesday.

According to the latest CBI Service Sector Survey, optimism deteriorated for the third consecutive quarter across the sector in the three months to November.

A balance of -55% of firms in business and professional services reported a decline in sentiment, the sharpest fall since May 2020, when the UK was in the first Covid-19 lockdown. In consumer services, the balance was -48%, although that was an improvement on the -64% seen in August.

Charlotte Dendy, head of economic surveys at the Confederation of British Industry, said: "Strong cost and price pressures are continuing to hurt services firms, damaging optimism and investment intentions, and hurting profitability."

Business and professional services volumes eased with a balance of -2%, largely unchanged on the previous three month’s -1%, but were forecast to tumble to -32% in the next quarter.

Costs in consumer services continued to grow during the quarter, with a balance of 57%, although that was a slower pace than August’s record 88%.

Cost pressures are expected to remain elevated across the entire sector in the next quarter, however, hitting profitability in both business and professional services and consumer services.

Dendy added: "While firms welcomed the Autumn statement, the sector is looking for longer-term measures from government to spur business investment and bolster confidence into 2023 and beyond."

The survey, carried out between 28 October and 16 November, was based on responses from 297 service firms. A balance is the weighted difference between the percentage of firms reporting an increase and those reporting a decrease.