Mixed outlook for UK services sector

26 Feb 2021 10:46 AM

Business optimism improved amongst business & professional services during the three months to February, with employment expected to rise in the next quarter, according to the latest quarterly CBI Service Sector Survey.

In consumer services, however, sentiment and employment continued to fall and the outlook for the next three months remains poor.

Business volumes in both sub-sectors continued to fall in the three months to February. With the UK in lockdown since early January, the decline in consumer services volumes accelerated sharply, almost matching the pace seen in the lockdown in the spring of 2020. Looking to the quarter ahead, the outlook for volumes is mixed, with business & professional services set to return to growth, but a further fall expected in consumer services volumes, albeit at a slower pace.

Meanwhile, costs per person picked up across both sub-sectors during the quarter to February, and they are expected to grow at a faster rate next quarter. Average selling prices fell across the service sector in the three months to February. Business & professional services expect prices to stabilise next quarter, while consumer services expect prices to fall further.

Against this backdrop, profitability continued to weaken, at broadly the same pace as last quarter. Looking ahead, profitability is expected to stabilise for business & professional services firms, but decline at a steady pace in consumer services.

Services employment continued to come under pressure, with both sub-sectors reporting a fall, although at a slower pace compared to last quarter. While the pace of decline is anticipated to ease further for consumer services, business & professional services are expected to increase their headcount.

The outlook for investment remains subdued. Firms across the services sector expect to cut back on spending on land & buildings, and on vehicles, plant & machinery over the next twelve months, although spending on IT for business and professional services is expected to increase. Companies reported uncertainty about demand as the leading factor weighing on investment plans for the year ahead.

Ben Jones, CBI Principal Economist, yesterday said:

“With lockdown measures still in place, trading conditions remain extremely difficult, with firms across the UK’s services sector reporting a quarter of falling volumes, profitability and employment.

“Although, the pace of decline has eased, particularly compared with the first lockdown last year, the next few months promise mixed fortunes for the sector. Consumer service activity, in particular, is expected to remain in the doldrums, though business and professional services firms are a bit more hopeful, with profitability projected to stabilise and employment set to grow.

“While businesses will welcome the clarity on re-opening provided by the government’s road-map, restrictions are chipping away at companies’ resilience, with majority of firms putting their investment plans firmly on ice for the year ahead.”

Key findings:

Business & professional services

Consumer services