UK service sector optimism suffers – latest survey data

In the three months to November 2020, sentiment in the UK consumer services subsector deteriorated at a faster pace than in the previous quarter. Optimism fell in the UK business and professional services subsector, after a brief period of improvement in the quarter to August. Those were the overall findings of the latest quarterly Service Sector Survey by the Confederation of British Industry (CBI).

Volumes continued to fall in both subsectors, though more slowly than in the previous quarter. The survey of 229 respondents – carried out between 28 October and 15 November – suggests that the outlook for the next quarter remains challenging, with volumes expected to decline at a slightly quicker pace.

Profitability continued to fall, although the rate of the decline eased compared with the previous two quarters. Next quarter, both subsectors expect to see a quicker decline in profitability.

While employment dropped at a slower pace across the service sector as a whole, consumer services still witnessed the second sharpest fall on record. Headcount is tipped to continue falling over the next three months, albeit at a slower pace.

Investment intentions remain subdued across both subsectors: firms expected to cut back or keep spending the same on all areas of capital expenditure. Demand uncertainty remains the key factor weighing on investment decisions.

“Business-facing services are also struggling from weaker demand”

CBI Principal Economist Ben Jones commented: “Unsurprisingly, sentiment waned across the service sector as Covid’s second wave crashed on UK shores. The worrying fall in service sector volumes, profitability and employment continues.

“The impact has been more pronounced in consumer services, which have been hit the hardest by shifts in consumer behaviour, social distancing rules and the autumn lockdowns. But many business-facing services are also struggling from weaker demand, from recruiters and building managers to advertising firms, accountants and lawyers.

“Extending the Job Retention Scheme into next spring has provided firms with some certainty amid the crisis. For many service businesses, the looming end of the transition period with the EU represents a double blow, posing another significant challenge to firms’ resilience.

“Data adequacy, which lies outside a potential Free Trade Agreement, urgently needs securing to prevent money being poured into amending contracts unnecessarily, which would be unaffordable for many smaller firms.”

Click here for further details of the survey’s findings.

Are you concerned about the impact the end of the EU transition period will have on your business? For advice on preparing to meet the challenge, email me or call me on 020 7099 2621.