Optimism high in service sector after year of growth - CBI survey
27 May 2014 12:52 PM
Firms continue to take
on more staff
The service sector is continuing
to feel the benefits of the economic upswing with growing optimism, business
volumes rising briskly and firms taking on more staff. That’s according
to the CBI’s latest quarterly Service Sector Survey.
In the three months to May,
firms were increasingly confident about the business situation, with optimism
rising at the fastest rate since the start of the survey in 1998, while
business volumes rose again, marking a full year of growth. The survey of 151
firms also revealed that companies have continued to take on more staff and
increased expenditure on training.
Katja Hall, CBI Deputy
Director-General, said:
“With a full year of
growth under their belts, service sector firms are more upbeat than they have
been for a long time.
“The recovery continues to
strengthen with both consumer and business-facing firms taking on more staff
and investing in training and IT.
“But a rising number of
firms, particularly in business and professional services are having problems
finding the right staff. This survey identifies a skills gap as a growing
constraint on business expansion in the sector over the year
ahead.”
Consumer services - hotels,
bars, restaurants, travel and leisure firms and others in consumer-facing
sectors - regarded levels of business to be comfortably above normal. Business
volumes rose strongly once more and growth is expected to pick up further in
the coming quarter. Despite a sharp rise in total costs, the profitability of
these firms improved at the liveliest rate since late 2006. Numbers employed
grew strongly for the third consecutive quarter and firms plan to boost
spending on training/retraining staff over the next three months at the fastest
rate since November 2007.
The business and professional
services sector - which includes accountancy, legal and marketing firms - saw
growth in business volumes edge up, to its fastest pace since 2006. Firms
reported their level of business to be above normal for the first time since
November 2007. Average selling prices rose following a prolonged period of
falling or stable prices, while the rise in profitability gathered pace from
the previous quarter. Headcount has now risen steadily for a full year, while
growth in expenditure on training/retraining expanded at the fastest pace since
February 2006. In the coming quarter, firms expect to raise headcount further
and continue to invest heavily in staff training.
Looking ahead, consumer-facing
firms appear more bullish about their prospects than business &
professional services firms, which expect the pace of growth in business
volumes and values to moderate. Firms in both sub-sectors expect their
businesses to expand over the next year, though to a lesser degree than the
last quarter. Consumer services firms plan a strong increase in IT capital
spending over the next 12 months, driven mostly by a desire to replace existing
capital. Inadequate net returns were seen as the single biggest factor likely
to limit capital expenditure over the next year, while the proportion of
respondents citing demand uncertainty dropped to its lowest level since May
2006.
Business and professional
service firms will also focus capital expenditure on IT. Replacement and
efficiency improvements remain the most important investment motives, but
capacity expansion has gained notably in importance (with citations rising well
above their long run average). As with consumer services firms, they are less
worried by demand uncertainty than at any time since the financial
crisis.
The Service Sector Survey was
conducted between 25th April and 14th May 2014.
101 Business and Professional Service firms and 50 Consumer Service firms
responded.
The key findings
are:
Consumer
Services
- Optimism about business
conditions rose strongly (+53%), at the fastest pace since the start of the
survey in November 1998. 56% of firms said they were more optimistic than three
months ago and only 3% said they were less optimistic
- 58% of firms said business
volumes were up compared with three months ago and 17% said they were down,
resulting in a rounded balance of +42%. More robust growth in business volumes
is expected next quarter (+55%)
- With 47% saying numbers employed
were up on three months ago and 12% saying they were down, employment grew at a
solid pace (a rounded balance of +34%) with a similar expansion expected in the
coming quarter (+36%)
- Total costs per person employed
increased strongly (+42%), but with average selling prices also rising (+28%)
and volumes growth strong, overall profitability increased (+46%) at its
strongest pace since November 2006 (also +46%). Similar growth in profitability
is expected next quarter (+49%)
- There is an increasing focus on
IT expenditure, with a balance of +24% planning to boost investment over the
next year and 57% citing increasing efficiency/speed/to exploit new technology
as a reason to authorise capital expenditure, comfortably above the long run
average (42%). Replacing existing capital is also major driver of investment
plans (69%).
- Uncertainty about demand/sales
(25%) as a reason to limit capital expenditure was well below average (48%) and
at its lowest since May 2006 (11%).
Business and Professional
Services
- Optimism about business
conditions (+54%) rose at the fastest pace since the survey started in November
1998, with 56% saying they were more optimistic than three months ago and only
2% saying they were less optimistic
- Business volumes expanded for a
fourth successive quarter (a rounded balance of +34%, resulting from 45% of
firms saying volumes were up, compared with three months ago and 11% saying
volumes were down). This was lower than had been expected (+46%) three months
ago
- Total costs per person rose at
the fastest pace (+42%) for over five years, but average selling prices edged
up (+12%) which, combined with strong volumes growth, helped lift profitability
(+20%)
- Headcount expanded at a solid
pace (a rounded balance of +23%, resulting from 30% of firms saying numbers
employed were up compared with three months ago, and 8% saying they were down).
A further increase is expected next quarter (+28%)
- Expenditure on
training/retraining rose at its fastest rate (+23%) since February 2006 (+26%).
The availability of professional staff as a factor likely to limit business
expansion has become an increasingly prominent concern over the past year
(cited by 33% of respondents in this survey)
- Expanding capacity is cited as
an increasingly important reason motivating capital expenditure authorisations
in the coming 12 months, its highest since August 2012 (both
44%).