Optimism in the UK’s dominant service sector has fallen at its fastest rate in seven years in the wake of the Brexit vote according to the latest quarterly survey from the CBI.
The business lobby group found that in consumer services the balance of firms who were optimistic about the general business situation in August was -37, down from +9 in May before the referendum vote.
This represented the biggest fall in confidence since February 2009.
The evaporation of confidence for business and professional services firms was also striking.
Here, the balance of firms who were optimistic about the situation fell to -30, down from -5 in May and the biggest quarterly decline since 2011.
Biggest drop since 2009...
Biggest drop since 2011
The balance of these firms expecting to expand operations also fell to -21, down from +5 in May
The fate of the services economy in the wake of the Brexit vote is pivotal since it accounts for just under 80 per cent of UK output and it has been the main driver of GDP growth since 2013.
The survey was conducted between 28 July and 12 August. Sixty one consumer service firms were questioned and 136 business and professional firms.
However, despite finding steep falls in confidence, the CBI’s findings in terms of the actual level of business activity in the wake of the 23 June referendum were much less alarming.
The balance of firms reporting increased volumes in the consumer services sector was +3 in August, down only from +10 in May. And in the business and professional services sector the balance was -4, only a mild deterioration from -5 in May.
“Whilst the service sector has been rocked by the stormy waters of Brexit, especially when it comes to firms’ sense of optimism, the actual slowdown in growth on the office and shop floor has been relatively modest” said Anna Leach, the CBI’s Head of Economic Analysis and Surveys.
“But looking ahead, the service sector faces a challenging environment in which to grow and invest, with uncertainty about demand weighing on firms’ minds.”
Other business surveys have also suggested a steep decline in business sentiment since the Brexit vote, but the very limited amount of official data released since the referendum vote suggests that UK consumers have continued to spend.
The CBI survey covers firms ranging from management consultants to telecoms firms, to transport companies to hotels and restaurants.
A similarly ambiguous post-Brexit picture comes today from the latest Lloyds Bank Spending Power Report.
This found that that 62 per cent of consumers said the country’s financial situation was either “not good” or “not good at all” in July, up from 55 per cent in June before the referendum
However, it also found that 67 per cent felt their personal finance situation was “good” or “excellent”, the highest level in the survey’s history.
“How long such confidence lasts remains to be seen” said Robin Bulloch of Lloyds Bank. “Consumers’ spending power could be squeezed if the price of imported goods rises in the wake of a weaker pound following the EU referendum.”
The pound instantly slumped to its lowest level against the dollar since the mid-1980s in the wake of the referendum and it is trading at a three year low against the euro.
The Lloyds barometer was compiled by surveying 2,000 Lloyds adult bank account holders between 8 and 21 July.
The closely-watched Purchasing Managers’ Indexes of activity for services and manufacturing collapsed in July, signalling (based on historic trends) an overall contraction of GDP in the third quarter of the year.
However, some analysts now think the damage may be less severe.
The latest PMIs for August will be released later this week and early next week.
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