Financial downturn spreads to Services Industry

According to a recent report from the Confederation of British Industry (CBI), business volumes in consumer services firms, such as cinemas, travel operators and restaurants, failed to increase for the first time in 18 months in the last quarter. It was reported that profitability also failed to grow for the first time in nine months as Britons spent less on holidays, cut back on gym subscriptions and saw less movies.

Some 22% of firms saw volume fall while 22% saw it rise, leaving a flat balance of 0%. This contrasts with a positive balance of 26% in the survey. Following strong expectations for profitability in the previous survey, confidence fell for the first time since August 2004, reaching the depths of a negative 24% balance.

As a result, firms have scaled back predictions for the coming quarter and expect to cut their investment in land and buildings, vehicles and plant and machinery. Costs also outstripped increases in prices. The negative figures put even more pressure on the Bank of England’s Monetary Policy Committee (MPC) to hold UK interest rates at 4.75% for yet another month. The MPC meets tomorrow to decide.

“The service sector has joined the unhappy ranks of retailers and manufacturers that are struggling in the face of softer demand,” said Ian McCafferty, chief economic adviser of the CBI. “In this challenging economic environment, the Bank of England needs to maintain stability by leaving interest rates on hold.”

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