Positive start to 2014 for UK service sector firms

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A third consecutive quarter of increased business activity in the UK’s service sector has resulted in improved profits and an optimistic outlook according to independent employers’ organisation, the Confederation of British Industry (CBI), which released its quarterly Service Sector Survey on Monday.

In three months to February, optimism grew at the quickest rate in the service sector since the surveys began in 1998. The survey of 139 companies included figures from the consumer sector, which includes hotels, bars, restaurants, travel and leisure firms, as well as in the business and professional services sector, which includes accountancy, legal and marketing firms.

Both sectors also reported robust growth in business volumes, which reportedly increased at the fastest rate since 2005. Despite rising costs generally outpacing increases in selling prices, the strength of business volumes also resulted in an improvement in profitability for the first time since 2007.

The survey of 139 companies showed that service sector firms achieved a second successive quarter of solid employment growth. However the rate of growth slowed in the three months to February, especially in the consumer sector, where employment had increased in the previous quarter. In the next quarter, employment figures are expected to rise the fastest since 2007, with consumer sector recruitment predicted to increase substantially.

Findings from the survey revealed that 48% of consumer services firms were more optimistic and 50% said business volumes were up compared to three months ago. Prospects for business grew, with 66% of consumer services companies planning to expand in the year ahead.

Optimism in business and professional services increased, with 51% of firms saying they were more optimistic than three months ago. Business volumes were up compared with three months ago for 41% of firms.

Overall profitability of the business over the past three months was higher than normal for 31% of firms, while 73% of business service companies are planning to expand in next 12 months.

Growth in expansion of UK service sector businesses is expected to increase over the year ahead, with more capital spending to be authorised, particularly on IT. Investment plans were shown to be positive across all categories for the second consecutive quarter

Anna Leach, CBI Head of Economic Analysis, commented:

“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.”

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