Service sector profits hit by rising cost pressures, says CBI

(Sharecast News) - Rising cost pressures continued to hit profitability across the UK services sector over the past three months, according to a CBI survey on Thursday. The CBI pointed to "persistently strong cost growth", with cost pressures growing for the 22nd straight quarter, despite only "modest" selling price inflation.

A net 43% of firms in the business and professional services sub-sectors reported growth in costs per person employed during the three months to February, down from 58% in November but well above the long-run average of 31%. In consumer services, a net 46% of firms reported higher costs, down from 66% three months earlier.

Business volumes across business and professional services continued to decline, with a net -8% of firms reporting increases. However, this was a slower pace of decline in than the quarter to January, when a net -33% reported increases, and the smallest fall since November 2024.

Volumes in consumer services came in at -37% from -50% over the three months to January, extending a period of flat or falling volumes that began in March 2022.

As a result, profitability in business and professional services fell (-28%) for the 17th straight quarter, and declined for consumer services firms (-49%), marking the joint fastest pace since May 2023.

Optimism about general business conditions was more or less unchanged across business and professional services over the period, coming in at -3% from -50% three months earlier. Consumer services optimism levels, however, continued to deteriorate at -45%, compared with -47% previously.

"Despite some pockets of improvement, 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," said the CBI's economic surveys and data manager Charlotte Dendy.

"Looking ahead, prospects for the business and professional services sub-sector appear somewhat brighter. However, with little sign of improvement in consumer services, overall momentum is likely to remain weak - weighing on investment and employment prospects."