Faltering services sector raises fears of double dip

The pace of recovery in Britain's dominant services sector appears to be faltering, business leaders warn today, casting new doubt on the economy's ability to avoid a "double dip" downturn. Sales in the business services half of the sector remained flat in the three months to the end of May, the Confederation of British Industry (CBI) said, while sales of consumer services actually fell.

In the latter – which includes hotels, bars and restaurants – 14 per cent of respondents to a CBI survey said their sales had increased during the quarter, while 35 per cent said sales were down, producing a negative balance of 21 per cent. Among business services such as accountancy, the equivalent figure was a negative balance of 5 per cent.

Profitability across the whole services sector has continued to fall, as have staffing levels, the CBI study also reveals. While price increases have protected businesses to an extent, the employers' group warns that higher costs are continuing to erode margins.

"These figures for the service sector show there is some way to go before the recovery gets up to speed. Firms selling services to the consumer are finding it tougher than those in business and professional services," said Ian McCafferty, the chief economic adviser to the CBI.

"Consumers are still being cautious about spending on discretionary activities such as eating out in restaurants or bars, and leisure and personal services such as haircuts or beauty."

The CBI's warning is particularly worrying since there is little immediate prospect of any sustained pick-up in household spending. The latest consumer confidence data, published on Friday, suggested that people feel more nervous about their financial futures, with tax increases and spending cuts expected in the Chancellor's emergency Budget later this month.

Interest rate rises, which the Organisation for Economic Co-operation and Development (OECD) has warned will have to take place before the end of the year, would also hit confidence. Nor is there expected to be any discernible short-term improvement in business services, with economic growth in 2010 likely to be modest at best.

The performance of the services sector is crucial because it accounts for about 70 per cent of Britain's gross domestic product. If services companies are not growing, the chances of the economy falling back into recession are increased.

Last week, the Office for National Statistics said the economy grew by 0.3 per cent in the first quarter of the year, compared with initial estimates of 0.2 per cent. But the growth was still lower than the 0.4 per cent recorded in the final three months of last year. The revision reflected a better-than-forecast performance from manufacturers rather than improvements in the key services sector.

The Treasury predicts 1 to 1.5 per cent growth for 2010 followed by 3 to 3.5 per cent in 2011. But Alan Budd, head of the new Office of Budgetary Responsibility, is expected to revise those projections downwards before the Budget.

Suggested Topics
News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
peopleReports that Brand could stand for Mayor on an 'anti-politics' ticket
News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
News
Voluminous silk drawers were worn by Queen Victoria
newsThe silk underwear is part of a growing trade in celebrity smalls
PROMOTED VIDEO
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Candidates with surnames that start with an A have an electoral advantage
newsVoters are biased towards names with letters near start of alphabet
Arts and Entertainment
Isis with Lord Grantham (Hugh Bonneville)
TV
Arts and Entertainment
Jay James
TVReview: Performances were stale and cheesier than a chunk of Blue Stilton left out for a month
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker