UK service sector sees slower growth, drop in optimism

Optimism in the UK’s dominant services sector declined in the three months to August, according to the latest quarterly report from the Confederation of British Industry (CBI) released on Tuesday.

The Service Sector Survey showed that the pace of business volume growth slowed in the business and professional services sub-sector, and remained stable in consumer services.

However, optimism in both sub-sectors fell sharply. In business and professional services, it fell at the fastest pace in nearly five years (since November 2011), the CBI reported. In consumer services, optimism dropped at the fastest rate since the financial crisis (February 2009).

During the quarter, investment plans for the service sector as a whole were brought back into line with long-run averages, following a stronger start to 2016. Business and professional services firms expect to maintain investment spending on land and buildings, while spending on vehicles, plant & machinery will be scaled back over the next year. In consumer services, investment in land and buildings will continue to grow, but at a slower pace, while spending on vehicles, plant & machinery will be flat on the year. IT expenditure will continue to show robust growth.

The CBI found that employment growth in both sub-sectors remained above average in the three months to August, and was at the strongest level this year in consumer services, but is expected to slow over the next quarter.

Service sector firms continued to invest in their employees: growth in spending on training and retraining remained resilient in the three-month period.

Commenting on the findings, Anna Leach, head of economic analysis and surveys at the CBI, said:

‘Whilst the service sector has been rocked by the stormy waters of Brexit, especially when it comes to firms’ sense of optimism, the actual slowdown in growth on the office and shop floor has been relatively modest.

‘It’s encouraging that employment numbers have remained robust, especially in the consumer services sector. But looking ahead, the service sector faces a challenging environment in which to grow and invest, with uncertainty about demand weighing on firms’ minds.

‘To shore up confidence across the economy, the Government must clearly communicate plans for negotiations to leave the EU, and demonstrate its commitment to stimulating growth and driving investment with an ambitious Autumn Statement.’