UK service sector activity and confidence rise, CBI survey finds

Chefs The service sector accounts for about three quarters of the UK's economic output

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Business activity and confidence in the UK service sector has grown strongly, according to the CBI's latest survey.

Business and professional services - which includes legal and accountancy firms - saw a particularly sharp turnaround in business volumes.

Activity in consumer services - such as travel, food and drink - grew at its highest level since August 2007.

But the quarterly survey found that profitability at restaurants, hotels, and pubs fell despite better trading.

This suggests that many firms are resisting passing on their rising costs to customers because of the continuing tough competitive environment.

The survey by the employers' group, which covered the three months to August, adds to recent data pointing to improvements in the UK economy.

Last week, revised official figures showed that the economy grew by 0.7% in the second quarter, better than previously thought.

Services account for about three quarters of UK output, and the survey's findings that activity and volumes are rising will be welcomed.

But the signs that margins and profitability are being squeezed underlines that problems remain, the CBI's director of economics, Stephen Gifford, said.

"Consumer services firms are a bit more worried about the longer term, and have scaled back their investment and expansion plans," he said.

"Conditions remain tricky as households grapple with the prolonged squeeze on real incomes and business confidence remains vulnerable to any adverse developments in the global economy."

Confidence

The survey found that a balance of 15% of companies in consumer services saw business volumes grow, a level that has not been reached since August 2007. Confidence was also high, with a positive reading of 28%.

However, fewer firms saw profitability increase than saw it decrease, giving a negative 15% reading - the worst since February last year, with a further fall expected over the next three months.

The business and professional services sector saw a positive volume growth reading of 20% - the best since November 2007, with optimism also up.

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