Knowledge Centre
24th August 2009
Business conditions in the services sector show improvement, but falling prices continue to affect profitability, new research has shown.
The Confederation of British Industry's (CBI) Service Sector Survey, covering the three months to August, suggests that business and professional service firms saw an increase in both the values and volumes of business for the first time since May 2008.
The percentage balance of firms reporting positive values was up to +5 from -54 in the previous quarter, while those reporting positive volumes recovered from -43 to +6.
And consumer services firms said that business values and volumes fell at a slower rate than the previous three quarters, at -7 and -13 respectively from -30 and -53 in the three months to May.
More business and professional service firms expect business values and volumes to rise in the next three months than at any other point since November 2007, with balances of +14 and +19 respectively.
The consumer services sector expect values to stablise, up to 0 from -10 in May, and volumes to improve, up to -7 from -36, over the same period.
However, deflation continues to undermine profitability across the service sector. The average selling price measure for consumer services fell from +18 in the previous quarter to -21 in the three months to August, while the business and professional services measure was even lower, at -31. The profitability measure stood at -46 for consumer services and -18 for business and professional services.
Lai Wah Co, head of economic analysis at the CBI, said that, while business conditions "remain difficult" for service sector firms, "activity has not been anywhere near as weak as in recent quarters and things are starting to look up, particularly for business and professional firms".
"These companies have seen an increase in business, albeit modest, for the first time in over a year and they are now feeling more optimistic," he said.
"We are still seeing consumers rein in their spending on services, but no longer at rapid rates. And across the service sector, prospects for business expansion and investment are the least gloomy for some time."
Prospects brighter for services sector - but prices still falling
The Confederation of British Industry's (CBI) Service Sector Survey, covering the three months to August, suggests that business and professional service firms saw an increase in both the values and volumes of business for the first time since May 2008.
The percentage balance of firms reporting positive values was up to +5 from -54 in the previous quarter, while those reporting positive volumes recovered from -43 to +6.
And consumer services firms said that business values and volumes fell at a slower rate than the previous three quarters, at -7 and -13 respectively from -30 and -53 in the three months to May.
More business and professional service firms expect business values and volumes to rise in the next three months than at any other point since November 2007, with balances of +14 and +19 respectively.
The consumer services sector expect values to stablise, up to 0 from -10 in May, and volumes to improve, up to -7 from -36, over the same period.
However, deflation continues to undermine profitability across the service sector. The average selling price measure for consumer services fell from +18 in the previous quarter to -21 in the three months to August, while the business and professional services measure was even lower, at -31. The profitability measure stood at -46 for consumer services and -18 for business and professional services.
Lai Wah Co, head of economic analysis at the CBI, said that, while business conditions "remain difficult" for service sector firms, "activity has not been anywhere near as weak as in recent quarters and things are starting to look up, particularly for business and professional firms".
"These companies have seen an increase in business, albeit modest, for the first time in over a year and they are now feeling more optimistic," he said.
"We are still seeing consumers rein in their spending on services, but no longer at rapid rates. And across the service sector, prospects for business expansion and investment are the least gloomy for some time."
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