Employment in UK's biggest sector in the economy falls sharply

Employment in the UK services sector fell sharply in the three-months to August, while volumes and profitability also continued to decline, according to a survey by the Confederation of British Industry (CBI).

The survey showed that optimism in the UK’s biggest sector was mixed in the last quarter with business and professional services experiencing a slight uptick in sentiment — up 9% from -79% in May, while sentiment in consumer services dropped less sharply to -20% from -86% in May.

Services employment took a knock with business and professional firms reporting a decline in headcount this quarter, with employment in the sub-sector dropping at the quickest rate since May 2009 to -32% from -9%.

Customer services saw headcount plunge at the fastest pace on record to -63% from -31%, with predictions that the next quarter will see employment continuing to decline but at a slower rate.

The services sector, which includes banking, restaurants, hotels and retail makes up about 80% of the UK economy.

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Meanwhile, business volumes across the sector fell at a slower pace in the quarter to August, with both sub-sectors expecting a decline in business volumes to ease in the three months to November.

Both sub-sectors also reported the second most negative balance in the survey’s history, after profitability continued to fall in the three months to August. Profitability across the services sector is tipped to drop further in the next quarter, but at a slower pace.

Prices across the sector also fell in the three months to August, with business and professional firms expecting prices to decline at a similar rate in the next quarter, while consumer services expect prices to drop at a slightly slower pace.

Cost per person fell at the sharpest pace in the survey’s history to -30% from -5% in the business and professional services, with costs in consumer services remaining unchanged. Costs across both sub-sectors are expected to return to growth in the next quarter.

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Consumer services companies expect to cut back on investment in all categories — highlighting inadequate net return and uncertainty in demand as the biggest contributing factors, with uncertainty in demand at its highest since the financial crisis.

Overall, the outlook for investment intentions remains bleak, with business and professional firms expecting to cut back on vehicles, plant & machinery, training, and land and buildings over the next 12 months, with IT investment expected to increase in the same period.

CBI principal economist, Ben Jones said: “This quarter has shown some worrying falls in volumes, profitability and employment for the services sector. Although the pace of these declines is expected to ease, it’s clear that the services sector still faces challenges in terms of demand, revenues and cash flow.

“There is also a clear divergence by sub-sector, with consumer services seeing a particularly severe hit to activity and employment. Meanwhile, although business and professional services appear to be holding up slightly better in comparison, future challenges include what our trading relationship will look like with the EU next year.”

Jones also called for a “bold plan to protect jobs” as the job retention scheme draws to an end in October, to “support” the services sector.