Latest CBI monthly services sector survey and growth indicator

SIGNS OF GREEN SHOOTS DESPITE EIGHTH CONSECUTIVE ROLLING QUARTER OF FALLING PRIVATE SECTOR ACTIVITY – GROWTH INDICATOR 

Across the private sector as a whole, activity fell slightly in the three months to March, broadly matching the pace of last month’s contraction (-4% from -6% in February). This marks the eighth consecutive rolling quarter in which activity has fallen, but this month’s decline was the mildest since July 2022.

The fall in private sector activity largely reflects weakness in the service sector, with declines in both business & professional (-5%) and consumer services (-11%) volumes. Distribution sales remained broadly flat over the same period (+3% from -7%), while manufacturing output contracted at a slower pace than the previous month (-6% from -16%).

Looking ahead to the next three months, private sector activity is expected to return to growth (+5%) – the first time there have been positive expectations for growth since April 2022.

Manufacturing firms expect to see a recovery in output in the three months ahead (+12%), while a slight uptick is expected in service volumes over the same period (+4%). Distribution sales look set to remain broadly unchanged (+3%).

SLIGHT UPTURN FOR SERVICES SECTOR POINTS TO BRIGHTER MONTHS AHEAD – SERVICE SECTOR SURVEY 

Business volumes declined in the service sector as a whole in the three months to March, following broadly flat volumes in the quarter to February. Consumer services volumes continued to fall at a slower but still moderate pace, while business and professional services volumes dipped after stagnating in the three months to February. Meanwhile, business and professional services employment fell at the fastest pace since January 2021, while headcount remained flat in consumer services.

The outlook for the next three months is somewhat brighter, as volumes in business and professional services are set to return to growth. Meanwhile, consumer services volumes are expected to remain unchanged. Additionally, headcount is expected to return to solid growth in both services sub-sectors next quarter. Nevertheless, expectations for average selling price growth i remain strong.

Key survey figures for this month include:  

• Business & professional services: Volume of business -5%; Numbers employed -12%
• Consumer services: Volume of business -11%; Numbers employed +3%

Looking ahead to the next three months:  

• Business & professional services: Volume of business +5%; Numbers employed +15%; average selling prices +30%
• Consumer services: Volume of business 0%; Numbers employed +21%; average selling prices +49%.

Alpesh Paleja, CBI Lead Economist, said:  

“It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions, rather than delivering the strong, sustainable growth we need.

“While the Chancellor has set out an ambitious plan to deliver growth in his Spring Budget, there’s broad recognition that the UK still faces considerable economic headwinds.

“Inflation remains stubbornly high and, while businesses and consumers can expect lower energy prices to feed through later in the year, the pressures on household budgets will weigh on consumer spending. Tighter credit conditions, stemming from recent events in the global banking sector, will also have an impact.

“Against this backdrop, UK businesses need the Government to support their investments. The decision to implement full expensing for capital investment is a welcome first step, as it not only helps offset a steep rise in corporation tax but offers a generous incentive that can ignite business investment and get the economy growing again.”