Optimism in the UK service sector is falling at the fastest pace in almost two years, according to a new report.
Sentiment among British businesses and professional services fell 4% in Q2, from a 14% increase in the first quarter - the fastest decrease since November 2016.
Growth in business volumes also slowed from +25% in the first quarter to +14%, and is expected to weaken further in the next quarter.
These figures are from the CBI’s Services Sector Survey, which takes the pulse of the services sector that accounts for 42% of the private sector economy, covering questions on business optimism, value and volume of business, average selling prices, employment and more.
The report found that the business and professional services sector – which includes accountancy, legal and marketing firms – saw growth in business volumes ease in Q2, with the pace expected to slow in the next quarter.
Growth is predicted to weaken further in the three months to November (+6%), falling below average (+10%).
Despite this, after a sharp decline in Q1, business volumes picked up in the consumer services sector – which includes hotels, bars, restaurants, travel and leisure firms - with demand for consumer services expected to increase further in the next quarter.
Optimism in the consumer services sector about the general business situation improved by +7% after an 11% fall in Q1, with growth in business volumes also bouncing back with a 7% increase compared to the previous quarter’s 12% decline.
Ultimately, the CPI said the broader economic outlook remains “fairly subdued”, with UK GDP growth held back by weak household income growth and the uncertainty surrounding Brexit's impact on investment.
Rain Newton-Smith, CBI Chief Economist, said: “Although consumer services growth inched up last quarter, overall services sector growth was fairly muted. And with cost pressures rising, services firms are not seeing any improvement in their bottom lines.
“The underlying challenges facing the sector are not going away any time soon. Demand growth is expected to remain subdued next quarter and firms seem hesitant over the prospects for expanding their businesses in the year ahead. They still plan to take on new workers next quarter, but the confidence to invest significantly more is lacking.
“Above all, the Government and Brussels need to get on with finalising a Withdrawal Agreement, putting pen put to paper on a jobs-first transition period and finally, agreeing a new relationship between the UK and the EU that puts people’s livelihoods above politics.”
