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Service sector in upbeat mood as activity and growth picks up

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It isn’t just manufacturing firms that are seeing the economy pick up, service sector firms are also benefiting from an upbeat mood.

Following a third consecutive quarter of rising activity, service sector firms in both the consumer sector (which includes hotels, bars, restaurants, travel and leisure firms) and professional services sector (such as accountancy, legal and marketing firms) have seen their optimism grow at the fastest rate since the start of the CBI’s quarterly Service Sector Survey in 1998.

The survey of service sector firms shows that business volumes rose at the quickest pace since 2005, with companies in both the consumer and professional services sectors reporting robust growth. 

The strength of business volumes has caused profitability to improve for the first time since 2007, despite the fact that rising costs generally outpaced increases in selling prices.

“2014 has started well for our service sector firms. Business activity is up, optimism is high and profits are improving too,” says Anna Leach, CBI head of economic analysis.

“It is encouraging that strong growth is being reported across the whole sector. Headcount is predicted to rise next quarter and expectations for an expansion of business over the year ahead are the strongest for a decade.”

Indeed, the survey of 139 companies revealed that service sector firms reported a second successive quarter of solid employment growth, although the pace of growth slowed in the three months to February, particularly in the consumer sector, where employment had surged in the previous quarter. 

Overall, headcount is predicted to rise at the fastest pace since 2007 in the next quarter, with hiring in the consumer sector expected to be particularly strong.

Expectations for an expansion of business over the year ahead were the strongest for a decade. Service sector firms also plan to authorise more capital spending in the next 12 months, particularly on IT, but investment intentions remained positive across all categories for the second consecutive quarter.

“As the recovery gets more firmly entrenched, there are positive signs that 2014 could be a good year in the service sector,” adds Leach.

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