Britain’s services sector company profits fall for seventh consecutive quarter

Profits for Britain’s services sector companies have fallen for a seventh consecutive quarter, new figures suggest, as businesses continue to struggle under the weight of higher interest rates and stubborn inflation.

The latest quarterly services sector survey by the CBI has found that cost pressures and disappointing business volumes drove down profits for the consumer and professional services industries over the three months to August.

A net balance of 27 per cent of consumer services operators suffered a fall in profitability over the three months, albeit better than 53 per cent in the previous quarter, while a net balance of 19 per cent of professional services companies reported a decline.

The consumer services industry also recorded a sharp decline in business volume, with a net balance of 34 per cent of companies reporting a fall in volumes, compared with 22 per cent during the previous quarter. Professional services business was steady, with a net 2 per cent of companies reporting a weakening in activity.

With costs expected to remain well above the long-term average, the fall in profits is expected to slow in professional services but to decline at the same rate in consumer services.

The research echoes findings from the monthly composite purchasing managers’ index, which showed that a surprise downturn in the services industry in August had caused the private sector to contract at its fastest pace since the start of 2021.

The economy has recorded modest growth this year, boosted by the dominant services sector, which had continued to power ahead despite rising interest rates and inflation. However, S&P Global, which helps to compile the PMI survey, said that services industries had reported the weakest output in 31 months amid pressures from the cost of living crisis.

Both sets of figures will add to expectations that UK GDP is set to have contractedc during the third quarter, meaning that the economy would meet the first leg of a technical recession, which is defined as two consecutive quarters of negative growth.

Charlotte Dendy, the CBI’s head of economic surveys and data, said: “Many companies will continue to face a challenging time this autumn and winter as pressure on household budgets and tighter credit conditions continue to have an impact.

“Despite a fall in inflation and moderately lower energy costs, help is needed from government in the autumn budget to assist businesses in navigating another difficult winter where cost pressures are likely to continue to impact firms’ decisions to grow and invest.”

Elevated inflation and higher financing costs have caused investment plans for the next 12 months to deteriorate in both sub-sectors, with cutbacks expected on land and buildings and on vehicles, plant and machinery.