Service sector hit by rising costs and reduced consumer spending

A dip in consumer confidence has strained the services sector, according to the latest quarterly survey from the Confederation of British Industry.

Reducing consumer spending and rising operational costs have hit profits, with optimism in November falling.

That is despite many predictions for a positive festive period despite, reductions in the value of the pound and the introduction of a higher national living wage.

When compared to three months ago, 18% of firms reported that they were more optimistic, while 38% said they felt the opposite.

Growth in the economy has been stronger than was anticipated in the immediate aftermath of the EU referendum, but forecasters still suggest that growth will slow in 2017.

Business and professional services firms all expect sales to fall in the next few months according to the CBI survey, despite a marginal increase in the last three months.

Consumer services, including hotels, leisure and travel firms, said that sales volumes grew in the same time period, while quicker growth is anticipated in the coming quarter.

However, the report also noted that growth aspirations in both subsectors are low, as the vast majority of firms do not expect to expand massively.

While the manufacturing and construction sectors have faced time in recession, much of the services sector has ticked along in recent years – driven by events and leisure spending.

The dip in consumer spending will therefore be a concern for businesses operating on tight margins, as they can ill-afford to miss out on sales or suffer from a change in fortunes.

Firms facing such issues should therefore assess their options at the earliest opportunity – contingency planning can provide a solution in order to find the best outcomes.

Restructuring options do exist to aid those facing financial difficulty, while alternative finance options could also be used to help a business succeed.

One positive for the services sector according to CBI chief economist Rain Newton-Smith, is that employment growth has remained strong despite the fall in optimism.

She explained that while teams still plan to invest, especially in training and development, uncertainty over future demand could act as a constraint.

By Phil Smith

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