Confidence in the UK services sector has fallen sharply. A new survey from the CBI reveals this worrying trend. Rising costs and weak demand are the main causes. Consequently, businesses are facing a severe profit squeeze. This difficult situation is undermining the annual outlook. Many firms are now cutting back on hiring. They are also reducing investment significantly.
Moreover, the survey shows widespread pessimism. Consumer services firms reported a negative outlook. This marks the eighth straight month of gloom. Business-to-business services also declined. They reported falling activity for a fourth month. Optimism about the general business situation deteriorated. A balance of firms remained pessimistic about the next quarter.
Furthermore, Alpesh Paleja from the CBI commented. He said the survey paints a grim picture. He noted only pockets of resilience exist. These cannot reverse the downward trend. The services sector is crucial for the UK economy. It represents about three-quarters of all activity. Therefore, its health is a major economic bellwether.
Additionally, Paleja explained the current pressures. Rising employment costs drive inflation higher. However, subdued demand limits pricing power. This combination creates a damaging profit squeeze. Companies are now focusing on short-term survival. They call this firefighting. This shift hurts long-term growth prospects.
Meanwhile, other data supports these findings. A monthly S&P Global survey voiced similar concerns. It registered the biggest drop in new orders recently. However, another study updated unemployment figures. The rate accelerated from 4.7% to 5% in just two months. Firms are simply not replacing staff who leave.
Consequently, the government faces increasing pressure. The chancellor will address this in the autumn budget. She wants to boost economic growth and employment. However, the Bank of England faces a difficult choice. Rising joblessness suggests need for an interest rate cut. Yet, concerns about high inflation suggest keeping rates high.
Finally, manufacturers also feel the pinch. Official data showed a similar profit squeeze for them. Moreover, UK factory gate prices rose at their fastest pace in years. Prices charged by firms increased 1.9% in the year to June. The biggest increases were in food and textiles. This overall economic picture remains challenging. The services sector’s struggles point to broader issues. The profit squeeze continues to hinder recovery.
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