UK services hit by worsening conditions, CBI finds

Business conditions in the UK service sector continue to worsen as household spending is squeezed and fears over the eurozone debt crisis mount, the Confederation of British Industry (CBI) warns.

Services are considered the powerhouse of the British economy and contribute the bulk of the country’s GDP. Declining business conditions here may add weight to the view that the economy is heading towards another slowdown.

The CBI Service Sector Survey shows the service sector was hit by falling sales volume and value during the three months to November, with consumer services faring worse than business or professional services.

In addition, firms have seen their cost rise more quickly than expected, causing profitability to fall “sharply” when combined with easing business volume and value.

Ian McCafferty, chief economic adviser to the CBI, says weakening conditions for consumer services firms suggests households are once again cutting back on discretionary spending as their incomes become more squeezed.

“Spending on business and professional services also fell this quarter, with developments in the eurozone and heightened uncertainty over global prospects causing a sharp drop in business confidence,” he adds.

The findings follow the recent CBI Industrial Trends Survey, which showed the UK’s manufacturing sector suffered falls in orders during November.

Earlier this month, the CBI slashed its estimates for UK GDP growth to just 0.9% in 2011 and 1.2% in 2012, down from 1.3% and 2.2% respectively.

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