Services selling prices grow at fastest pace since May 2025 – CBI Service Sector Survey
Sentiment continued to fall across the service sector, albeit at a slower pace, according to the CBI’s latest Service Sector Survey.
Business volumes and employment in the sector continued to fall in the three months to August, although the fall accelerated in consumer services while business and professional services saw volumes decline at a similar rate to the previous quarter.
Meanwhile, cost growth eased across the sector last quarter, driven by slower growth in consumer services costs. Despite prices growing at the fastest rate since May 2025 in both sub-sectors, the rise in costs still outweighed price inflation, and consequently profits continued to drop for the nineteenth consecutive quarter.
These trends are set to continue into next quarter, although conditions appear less negative for business and professional services. While volumes and employment are expected to continue to fall for consumer services, they are set to stabilise in business and professional services.
Nevertheless, profitability is tipped to drop further in both sub-sectors despite slower cost growth and price inflation remaining elevated. As a result, firms expect to cut back on all investment areas – except for IT in business and professional services, where expectations are the strongest since February 2025.
Charlotte Dendy, economic surveys and data manager, CBI, said: “A continued rise in costs last quarter prompted services firms to raise their selling prices at the fastest rate since May 2025. However, price inflation continues to be outweighed by persistent cost growth, causing service sector profits to drop once again.
“Looking ahead, firms expect little relief over the coming quarter, though the picture appears less bleak for business and professional services than for consumer services.
“Service-sector firms are bearing the effects of persistent cost growth at a time when their customers have limited room to absorb higher prices. This means businesses are increasingly protecting demand by accepting lower margins and scaling back investment and recruitment. The Government must ease these pressures if it wants to support the productivity and wage growth that will meaningfully address the cost of living.”
The survey is based on the responses of 374 services firms, of which 254 were business and professional services firms and 120 consumer services companies. It was conducted between 27th July and 13th August and found that:
Business & professional services
- General business sentiment worsened further in the quarter to August, but at a slower pace than in May (-10% from -46% in May).
- The volume of business declined in August for the 22nd consecutive month, at a similar pace to July (-19% from -21%). In the quarter ahead, volumes are expected to stabilise (-3%).
- Costs per person employed grew further in the three months to August, and at the same pace as the quarter to May (+55%). Cost growth remained above the long-run average (+31%) but is set to ease slightly in the quarter ahead (+41%).
- Profitability deteriorated in the quarter to August at a slower pace than in May (-21% from -43%). Profitability is expected to continue declining at a broadly unchanged pace in the quarter to come (-22%).
- Average selling prices grew at a stronger pace in the three months to August (+15% from +6%). Selling price inflation is anticipated to ease slightly in the three months ahead (+8%).
- Employment contracted further in August, but at a slower pace than in July (-16% from -27%), marking the 21st month of flat or falling employment. Headcount is expected to be unchanged next quarter (-3%).
- Uncertainty about demand remained the most cited factor limiting capital expenditure (cited by 55% of respondents). This was followed by inadequate net returns (32%) and a shortage of internal finance (29%).
- Firms expect to cutback investment into both land & buildings (-11% from -9% in May) and vehicles, plant & machinery (-16% from -22% in May), while IT investment is set to increase (+19% from +2% in May). The main reason for investment is to increase efficiency (55%).
Consumer services
- Optimism about the general business situation deteriorated further in the three months to August (-25% from -49% in May), marking the 18th consecutive quarter of unchanged or worsening sentiment.
- Business volumes fell in August, and at a faster pace than in May (-42% from -33% in May), marking two years of falling volumes. Business volumes are set to continue declining in the quarter to come, albeit at a slightly more modest pace (-31%).
- Total costs per person employed continued to grow in the quarter to August but at a slower pace than the quarter to May (+54% from +71%). Cost growth stayed above the long-run average (+41%) but is expected to ease further in the next three months (+44%).
- Overall profitability deteriorated further in the three months to August, at a slightly slower pace than in May (-53% from -65% in May). Profitability is set to fall at the same pace next quarter (-53%).
- Selling price inflation remained elevated, growing at the same pace as the quarter to May (+32%). In the quarter ahead, selling price growth is set to edge higher (+35%).
- Employment fell at a faster pace than in July (-36% from -23%). In the next three months, headcount is set to continue contracting at a broadly unchanged pace (-38%).
- Uncertainty about demand was the most cited factor limiting capital expenditure (cited by 69% of respondents). This was followed by inadequate net returns (37%) and shortage of internal finance (26%).
- Firms are anticipating cutbacks in capital expenditure across all investment categories: land & buildings (-19% from -28% in May), vehicles, plant & machinery (-28% from -38% in May) and IT (-11% from -18% in May), although intentions are less negative than last quarter.