Profitability in the UK’s service sector has declined for the seventeenth consecutive quarter, with new data indicating limited signs of improvement. The Confederation of British Industry’s (CBI) latest survey highlights the impact of rising costs on businesses’ bottom lines.
A weighted balance of -28% of business and professional services firms reported declining profitability in the three months to February, continuing a trend that began in February 2022. Consumer-facing firms faced even greater challenges, with a balance of -49% experiencing deteriorating profitability.
The CBI survey, based on responses from 351 firms, uses a balance method where the percentage of companies reporting an increase is subtracted from those reporting a decrease, with larger firms given more weight.
Profitability is expected to continue falling across both subsectors in the coming quarter, albeit at a slightly slower pace. The ongoing pressure on profit is attributed to rising costs, which businesses have reported for the 22nd consecutive quarter, while selling price inflation remains modest.
Charlotte Dendy, economic surveys & data manager at the CBI, stated, “Our latest survey indicates that conditions across the service sector remain challenging. Cost pressures continue to outpace selling price inflation, while demand remains subdued. This has squeezed profit margins and prompted firms to scale back headcounts.”
Dendy urged the Chancellor to use the upcoming Spring statement to support businesses. “Service sector firms want to see the government continuing to find appropriate landing zones on the Employment Rights Act and accelerating cuts to the regulatory burden – both critical to tackling the high cost of doing business,” she said.
