A survey carried out by the Confederation for British Industry has shown a sudden drop in activity within the business and professional services sector.
Accounting, legal and marketing work have all seen significant declines, causing activities across the entire services sector to decline for the first time in close to two years. Profitability in business and professional services fell by 38%, and consumer services –including restaurants, hotels and travel agents saw a drop in activity of around 25%, making it the worst quarter for the services sector since November 2009.
The drop was largely unexpected; however, outlook for the upcoming quarter remains bleak. The CBI’s head of fiscal policy, Richard Woolhouse said: “We’ve seen more evidence of ongoing decline in consumer services spending, as people with increasingly squeezed household incomes are forced to cut back their discretionary spending. What’s new, and was not expected this quarter, is that spending on business and professional services has also fallen, something we haven’t seen since late 2009”.
The survey was not all bad news, the number of people employed in business and professional services continued to rise and the number working in consumer services fell more slowly than most economists had predicted.
A separate survey conducted by manufacturing lobbyists the EEF called for better competition and more support from the banking industry, 277 companies were included in the survey, which showed that rates on existing borrowing are continuing to rise. “Conditions are slowly heading in the right direction, but the overall picture remains far from being as supportive as we would like” stated the EEF’s chief economist Lee Hopley.
The EEF wants to see the government stimulating competition between banks, making finance more accessible to small and medium sized companies. “With global clouds of uncertainty providing enough reasons for firms to hold off investments this is the time we can least afford to add any further constraints through tight conditions on accessing finance” said Hopley.
Chancellor George Osborne has cited manufacturing as a key area for the UK’s economic recovery, however consistent declines in recent months have shown that it is struggling to live up to these expectations.