Bleak autumn in prospect for services industry

Pessmism is growing at an alarming rate in the UK's dominant services sector as companies brace themselves for a tough autumn, the CBI warned today.

The business lobby group's latest quarterly survey of almost 200 services firms painted a bleak picture of faltering confidence with consumer-facing businesses such as travel agents, hotels and restaurants worst hit, the organisation said.

A summer of turmoil in the eurozone – the UK's biggest export market – has sapped the spirits of British business as the CBI warned that consumer businesses were far less optimistic than three months ago. The latest snapshot found a 23 per cent balance of firms downbeat about prospects, a sharp deterioration from May when just 2 per cent were braced for further gloom. A worrying 10 per cent of firms were hit by falling sales despite being primed for an increase in business, while companies are also braced for falling profits and more lay-offs over the next three months.

Professional services firms – including IT, media and accountancy – also suffered as optimism over the business situation slipped back sharply during the three months to August.

The latest survey comes after official figures confirmed a 0.1 per cent contraction for the services industry between April and June, with the economy overall shrinking for the third successive quarter – the longest double-dip recession since the 1970s. The CBI's study excludes financial services, but still covers companies accounting for around a third of output, and UK recovery hopes largely hinge on an improvement from the sector.

Anna Leach, the CBI's head of economic analysis, said: "Conditions in the service sector have not improved as expected this quarter, with firms now more negative about the overall business situation than they were three months ago. Companies selling services to consumers continue to face challenging times, with price-cost pressures and a weak business environment squeezing profits."

With official figures showing the biggest fall in investment spending for three years, services firms have also pared back capital expenditure plans amid uncertainty over the outlook. Consumer-facing firms are scaling back investment in land and buildings as well as vehicles and machinery, while business and professional services firms are cutting back in all areas except IT, the survey showed.