Business confidence plunged across the UK's services sector as mounting cost pressures and weak demand squeezed profits and worsened the outlook for the rest of the year. A majority of companies reported gloom and did not expect the usual post-summer acceleration in activity. Falling sales and rising costs led to profit squeezes, lower hiring and cuts to investment. Consumer-facing services reported negative sentiment for the eighth consecutive month, while firms serving other businesses saw activity decline for a fourth month. The balance of firms optimistic about the next quarter moved from -43% to -29%. Rising employment costs and subdued demand constrained pricing power, prompting short-term firefighting.
Business confidence plunged this month across the UK's services sector as mounting cost pressures and weak demand hit profits and undermined the outlook for the rest of the year. The CBI's latest service sector poll found that a majority of companies were gloomy about their prospects and discounted the acceleration in activity that usually follows the return to work after the summer break.
Services account for about three-quarters of economic activity in the UK and the sector acts as a bellwether for the state of the economy. Paleja said: Rising employment costs continue to drive cost pressures higher, while subdued demand conditions are holding pricing power in check. The impact is being felt in lower hiring, investment and profits, with companies increasingly shifting focus to short-term firefighting.
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