Service sector

Inflation and rising energy bills hit UK service sector hard

Rising inflation hurts all industries, according to Charlotte Dendy, head of economics at the CBI. Photo: Getty

According to a CBI survey of the services sector, UK businesses reported soaring selling prices, record cost pressures and bleak prospects.

The percentage of companies surveyed who said they felt cost pressures increased from 64% to 69%, although growth is expected to remain strong in the next quarter at 65%.

The percentage of businesses that said they had increased their average selling price increased from 23% to 31%, as businesses are expected to continue passing costs on to customers in the next quarter.

Charlotte Dendy, head of economic surveys at CBI, said: “There is little choice for those looking for positive signals in the services sector over the past quarter. Just as rising inflation is hurting households and to all industries, the service industry is no different.

Read more: UK economy nearly shuts down due to falling customer demand

“Average selling prices rose at a record pace and profitability in the sector fell again, with uncertainty over demand being the main reason for deteriorating investment intentions. Nevertheless, business and professional services fared somewhat better than consumer services, with employment continuing to grow, as well as investment in training and IT.”

The survey, which was based on responses from 199 service companies, also showed profitability fell 11% in the quarter ending August, similar to the previous quarter which fell 12%, with profits ahead. drop again and faster. in the next quarter – where they are expected to fall another 25%.

The rising cost of producing and selling goods has coincided with the cost of living crisis that has hit households and businesses nationwide.

Inflation has reached 10.1% and there have been warnings that average household energy bills could hit £700 a month from January 2023.

Read more: UK households face energy bills of £700 a month from January

In consumer services, the survey showed business volumes fell 37% for the first time in more than a year, with the pace of the decline expected to ease slightly in the next quarter. by 29%.

In the three months to August, costs rose at the fastest rate on record: 88%. During the next quarter, this rate should decrease slightly since it should be 77%.

At the fastest pace since May 2006, the average selling price has increased by 52%, and growth is expected to increase further by 56% over the next three months.

Profitability continued to fall in the three months to August by 64%, the highest rate in the past two years. Earnings are expected to drop another 84% next month, the lowest expectations on record.

Read more: UK inflation hits 10.1% as food prices hit 40-year high

“On September 5, businesses will look to the next Prime Minister to act quickly and effectively to help build confidence. This means supporting vulnerable households and businesses with high energy prices and setting out plans to put the UK economy back on a growth path,” Dendy said.

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