Service sector

Costs and Prices Rise to Record Highs – Service Sector Survey

March 03, 2022

Last quarter, cost prices and average selling prices continued to grow rapidly, with strong growth expected to continue over the next three months, reaching some of the highest expectations ever for the industry as a whole, but especially for business and professional services.

Although companies remain optimistic about the overall business situation, volume growth slowed in consumer services and stagnated in business and professional services. This, along with rising costs and prices, has translated into declining profitability across the service sector.

That’s according to CBI’s latest survey of the services sector, based on responses from 140 service companies. The survey was conducted between January 28 and February 15.

Charlotte Dendy, Head of Economics at CBI, said:

“Rising inflation and cost pressures are affecting profitability and business results. The specter of further price increases is felt everywhere.

“Despite this, businesses are looking to invest and employ more workers as the economy remains open for business. But weaker volume growth and declining profitability threaten companies’ good intentions.

“The Chancellor must use his spring statement to put us on a path to higher economic growth, starting with a permanent investment allowance that could boost business investment by £40billion by 2026. “

Business and professional services

  • Business volumes remained unchanged after three quarters of strong growth (+3% against +40%) but should return to growth in the next quarter (+22%).
  • Costs rose rapidly at a record pace (+62% vs. +56%) in the three months to February, with expectations being the highest on record for the next quarter (+74%)
  • Average selling prices also continued to grow at the fastest pace on record (+20% vs. +17%) and businesses are anticipating record price expectations in the next quarter (+26%).
  • Profitability fell in the quarter ended in February, after three quarters of solid growth (-19% against +20%), with a continuation of the decline expected in the next quarter (-13%).
  • Employment continued to grow at an above-average rate (+23%), and growth is expected to accelerate in the next quarter.
  • Plans to spend on vehicles, plant and machinery are the strongest on record (+20%), with investment in IT also expected to increase (+22%). Expenditure on land and buildings should be reduced (-12%).

Consumer services

  • Business volumes continued to grow, albeit at a slower pace than last quarter (+10% vs. +28%) with expectations of accelerated growth over the next three months (+24 %).
  • Costs continued to show strong growth (+65% vs. +78%) and the pace should pick up in the next quarter (+75%).
  • Rising costs have resulted in the strongest growth in selling prices since May 2007 (+42% against +20%) and this growth should accelerate in the next quarter (+52%, the strongest anticipation since February 2007).
  • Stronger cost pressures also weighed on profitability (-11% vs. +14%) and this decline is expected to continue in the next quarter (-15%).
  • Investment intentions are the strongest ever for IT (+53%) and for vehicles, plant and machinery (+36%), while spending on land and buildings is also expected to increase (+22%). %) at the fastest pace since February 2016.