CBI sees confidence restored in UK service sector

The latest quarterly survey by the Confederation British Industry has revealed that confidence is returning to the service sector.

The survey showed that firms recorded the first rise in business confidence for a year and follows the sharp declines in optimism after September 11 when confidence fell at the fastest rate since the survey began in 1998. The turnaround is particularly marked among business and professional services firms, where confidence is at its highest since late 1999.

Business volumes still fell over the past three months but at a slower rate than in the previous survey. Over the next three months, consumer services firms expect the slowdown to level out while business and professional service firms anticipate the first increase since May last year.

Commenting on the survey Ian McCafferty, CBI Chief Economic Adviser, said: "Firms are getting more confident about long-term business prospects, but at the moment they are still having a rough ride. Business volumes may be bottoming out but prices, costs and profits remain under pressure."

Business and professional services firms said costs rose much more quickly than expected over the past three months. Consumer services firms also said costs increased significantly, although less rapidly than in the previous survey.

The significant fall in prices predicted in the aftermath of September 11 did not materialize. But business and professional services firms continued to cut prices, although more slowly than before. Consumer services firms said prices were broadly the same despite predicting reductions.

With costs increasing and prices stable, profitability is expected to fall over the coming three months, although at a slightly slower rate than over the last quarter when profitability fell much more quickly than forecast.

Though numbers employed in consumer services fell more moderately than anticipated, this is the first reduction in employment levels since August 1999, however numbers employed in the business and professional services firms increased a little.

(MB)