WIREDGOV

Service sector firms started 2014 in upbeat mood following a third consecutive quarter of rising activity, according to the CBI’s quarterly Service Sector Survey.

In the three months to February, optimism in both the consumer sector – which includes hotels, bars, restaurants, travel and leisure firms, and in the business and professional services sector – which includes accountancy, legal and marketing firms, increased at the fastest rate since the start of the survey in 1998.

Business volumes rose at the quickest pace since 2005, with both sectors reporting robust growth. The strength of business volumes caused profitability to improve for the first time since 2007, despite the fact that rising costs generally outpaced increases in selling prices.

Anna Leach, CBI Head of Economic Analysis, said:

“2014 has started well for our service sector firms. Business activity is up, optimism is high and profits are improving too.

“It is encouraging that strong growth is being reported across the whole sector. Headcount is predicted to rise next quarter and expectations for an expansion of business over the year ahead are the strongest for a decade.

“As the recovery gets more firmly entrenched, there are positive signs that 2014 could be a good year in the service sector.”

The survey of 139 companies revealed that service sector firms reported a second successive quarter of solid employment growth, although the pace of growth slowed in the three months to February, particularly in the consumer sector, where employment had surged in the previous quarter. Overall, headcount is predicted to rise at the fastest pace since 2007 in the next quarter, with hiring in the consumer sector expected to be particularly strong.

Expectations for an expansion of business over the year ahead were the strongest for a decade. Service sector firms also plan to authorise more capital spending in the next 12 months, particularly on IT, but investment intentions remained positive across all categories for the second consecutive quarter.

The key findings are:

Consumer Services

• Optimism regarding the business situation rose strongly (a rounded balance of +43%), the fastest pace since the start of the survey, with 48% of firms saying they were more optimistic than three months ago and 5% saying they were less optimistic
• 50% of firms said business volumes were up compared with three months ago and 10% said they were down, giving a balance of +40%. More robust growth in business volumes is expected next quarter (+47%)
• 52% of firms said numbers employed would go up in the next three months and 10% said they would go down, giving a balance of +42, the highest since November 2007 (+30%)
• Firms are optimistic about their prospects for business expansion with 66% planning to expand in the year ahead, and 27% not planning to expand, giving a balance of +38%, the highest since February 2010 (+42%)

Business and Professional Services

• Optimism regarding the business situation rose strongly (a rounded balance of +46%), the fastest pace since the start of the survey, with 51% of firms saying they were more optimistic than three months ago and 5% saying they were less optimistic
• 41% of firms said business volumes were up compared with three months ago and 10% said they were down, giving a balance of +32%, the highest since November 2006 (+33%). More growth in business volumes is expected next quarter (+46%), the highest since February 2007 (+46%)
• 31% of firms said the overall profitability of the business over the past three months was higher than normal and 17% said it was lower, giving a rounded balance of +13%, the strongest figure since November 2007 (+34%)
• Firms are optimistic about their prospects for business expansion with 73% planning to expand in the year ahead, and 27% not planning to expand, giving a balance of +46%, the highest since May 2004 (+48%).