CBI: service sector falls sharply, but outlook improves

Businesses in the service sector have continued to decline quickly, but there are signs that the worst falls are over, the CBI has said.

Its latest quarterly review collated responses from 179 businesses, and compared the number reporting positive results with those reporting negative ones.

Measured by the resulting 'balance' between positive and negative answers, the volume of business in consumer services - such as hotels, bars and restaurants and the travel and leisure industry - fell at its fastest rate since November 2001.

The value of consumer services trade fell less steeply, with increased prices over the previous year offsetting falling numbers of sales.

But in business and professional services, such as legal and accountancy firms, deflation in prices meant that the value of trade declined even faster than the shrinking volume of business.

The CBI's chief economic adviser Ian McCafferty said that although the survey had shown further declines in business activity, the sharpest falls might now be over, judging by the easing of negative forecasts from respondents.

"Firms are a lot less pessimistic than they were three months ago, and although the recession has deepened, business is not expected to decline at the same rate going forward as it has in the past six months.

"Although the situation is very tough for firms, some tentative grounds for cautious optimism are starting to appear in some areas."

A record balance of consumer service businesses (+31%) reported that a lack of credit was affecting their prospects for growth, echoing last week's confirmation by the Bank of England that monthly lending to firms of all sizes was still sluggish in March.

However, in response to the Bank's figures, the Federation of Small Businesses said that small businesses had started to see an improvement in the availability of finance.