What the Data Says About the Service Economy
Business confidence in the services sector has taken a hard leap downhill this August, according to the latest CBI Service Sector Survey. Think of it as the economy’s version of a Friday night slump—businesses are feeling the burn, but the rate of decline has slowed a bit.
Costs Keep Rising, Profits Keep Falling
- Average selling prices are creeping up, but not as fast as they did in the last two quarters.
- That means profit margins are shrinking faster than a snowflake in July.
- Consumer‑service companies are still the inflation champions, whereas other sub‑sectors are trailing a bit behind.
Headcount: Less Sweat, More “Bye‑Bye”
Firms are cutting staff—slower than the prior quarter, but still a sad headline. Less hiring also means fewer innovators, fewer dreamers, and more room for the grey parrot that keeps the office lights on.
Breathe Easy? Not Really.
Looking ahead, experts predict that the next three months will see business volumes tumble slightly, though not as fast. Cost growth is expected to ease but will still be punching the rate‑tamp high by historical standards. Because costs are outpacing price inflation, we’re looking at a significant, yet slightly gentler, slide in profits—especially for business & professional services.
What About Investments?
- Services firms are staying cautious with capital spending.
- Land & buildings: cutting back.
- Vehicles & plant: ditched.
- IT budgets: Stagnant—no growth this year.
- Uncertainty about future demand remains the killer of investment plans.
- Internal finance worries stick around, above the long‑run average.
Economist’s Take
Alpesh Paleja, Deputy Chief Economist at CBI, says the picture is grimmer than a rainy day. “Even though there are pockets of resilience, rising costs and a sluggish demand are making firms skimp on hiring, investing, and taking their profits seriously,” he says. “We’re all busy fighting fires—except, unfortunately, the fires are the financial ones.”
He adds: “If the government wants to achieve long‑term growth, it has to deliver short‑term certainty now. With the tax burden already at a 25‑year high, the bakery will go into a strip‑out of tax increases. That’s the first step. The next is re‑thinking the Employment Rights Bill, which might be a recipe for more costs for employers, and thus dampening their willingness to fire up hiring or invest.”
Whether you’re a startup, an established firm, or just an economy‑hooked citizen, keep your eyes on the next three months—things are in for a slow and bruising decline.
