CBI sounds alarm over collapse in sales of consumer services

Consumer services companies have suffered a massive loss of sales, profits and confidence according to a report today that will intensify fears that households are cutting their spending budgets across the board.

Consumer services companies have suffered a massive loss of sales, profits and confidence according to a report today that will intensify fears that households are cutting their spending budgets across the board.

A survey of firms involved in a range of services in the entertainment, catering, leisure and travel industries said sales had stagnated over the past three months. The worst fall was among personal and leisure services companies.

The Confederation of British Industry (CBI) said it showed that the collapse in high street sales had now spread into business sectors that were exposed to the health of the consumer.

It will undermine the Bank of England's view that the slowdown in retail spending so far this year was a "temporary period" of retrenchment.

It has frequently pointed out that retail sales make up only 40 per cent of total consumer spending, with the rest going on cars and services.

Ian McCafferty, the CBI's chief economic adviser, said: "Weakening consumer demand on the high street has now spread to the service sector. The sector has joined the unhappy ranks of retailers and manufacturers that are struggling in the face of softer demand."

The CBI urged the Bank to keep interest rates on hold when it announces its decision tomorrow - but stopped short of calling for a cut.

Ian Smart, a partner at the accountants Grant Thornton, which sponsored the survey, said: "As witnessed on goods, many consumers are avoiding big-ticket purchases on services too. It throws into question the success of the forthcoming summer season for travel operators and the like."

The survey showed 22 per cent of companies saw sales fall over the past three months while 22 per cent saw a rise. This left a flat balance, marking the first time output had failed to rise since November 2003.

It is also a drop from the February survey when a balance of 26 per cent said sales had risen over the previous quarter.

The sector breakdown showed the worst fall was in personal and leisure services - from hairdressers to sports clubs - where the balance plummeted from plus 37 to minus 60.

Meanwhile, house prices fell last month taking the annual rate of price growth to its lowest level in four years, Halifax bank said yesterday.

The UK's largest mortgage lender said the market had stagnated with the average price of a home falling 0.1 per cent in the first five months of the year.

It stuck by its forecast of a "modest decline" of 2 per cent this year across the country. "The market is underpinned by sound fundamentals including record employment levels, good affordability and rising real earnings, " said Tim Crawford, its group economist.

Halifax's survey showed the average price of a home fell £1,047 or 0.6 per cent to £162,411 during May, the biggest fall since last October. Values are now just 5.7 per cent higher than a year ago, the slowest pace since May 2001, and a fall from April's 7.8 per cent annual growth rate.

House price inflation has slowed dramatically from a recent peak of 22.1 per cent in July last year in the wake of the five hikes in interest rates that the Bank of England ordered between November 2003 and August last year.