UK services sector confidence falls to 2.5-year low

UK services sector Business confidence dropped to its lowest level in two and a half years amid mounting cost pressures, according to Reuters, citing a survey by the Confederation of British Industry (CBI) released on Thursday.

The CBI’s sentiment index for business and professional services fell to -43 per cent in the three months to May, down from -28 in February, marking the weakest reading since November 2022. Consumer-facing services firms also reported deteriorating sentiment.

Firms cited rising costs due to April’s increase in employer National Insurance contributions and a nearly 7 per cent rise in the National Living Wage. Expectations for price increases surged among business and professional services firms, reaching the fastest pace in two years.

“The double whammy of both cost and price pressure ramping up is particularly worrying,” said Alpesh Paleja, deputy chief economist at the CBI, noting concerns about persistent domestic inflation.

Profitability expectations fell sharply, with the balance dropping to -47 per cent — the lowest since February 2020 and the weakest outside the pandemic period since 2008. Firms also reported weaker investment intentions, hiring, and business volumes.

The Bank of England, which began cutting interest rates this month, is closely monitoring service sector prices as it assesses the pace of further monetary easing. The CBI survey was based on responses from 215 firms collected between April 28 and May 14.

Attribution: Reuters
Subediting: M. S. Salama