Economic gloom hits services sector

According to the latest quarterly figures supplied by the CBI and Big Five firm Deloitte & Touche, the wave of economic gloom has spread beyond manufacturing into the service sector, with professionals having the most pessimistic outlook of the business climate in almost three years.

For the period from May to August 2001 the number of respondents who said they were less optimistic about the future, more than doubled. On a weighted balance, 50% more firms expressed negative sentiments than those who were optimistic. In May this figure was just 23%.

Furthermore, over the same period, profitability levels continued to fall, with the percentage of companies with falling profits outweighing those with increasing profitability by 35%.

The trend has almost reversed itself in just three months. In May, the number of companies with growing profits outweighed those with declining revenues by 16%.

In August, Maurice Fitzpatrick of the Tenon group warned that the recession in manufacturing, confirmed by Office for National Statistics figures, could have a ripple effect on other sectors as manufacturing ‘buys services from the rest of the economy’.

CBI director-general Digby Jones said the latest report was clear evidence that the economic slowdown had indeed spread beyond the ‘internationally exposed sectors typified by UK manufacturing’.

Jones identified an ‘intensified squeeze on business and professional services companies’ and said the Bank of England should cut interest rates sooner rather than later to ‘insulate’ the sector.

He also added voice to the CBI’s cries for the government to end the red tape burden on UK businesses citing once again the controversial climate change levy and ‘restrictive employment legislation’.

Roger Bootle of Deloittes agreed with Jones that the survey was evidence of the need for an interest rate cut, adding: ‘The consumer may still be active but business is becoming alarmed about economic prospects.’


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