Services sector sees decline in business volumes

Struggling businesses in the services sector may soon be in need of insolvency advice, as new figures have shown that trading conditions are getting tougher.

According to the latest data from the Confederation of British Industry (CBI), business volumes in the services sector have fallen in the last quarter at their fastest rate since November 2009.

The group's August quarterly Service Sector Survey revealed that firms dealing in business and professional services, including accountancy, legal and marketing firms, experienced a contraction during the period.

This came as an unexpected shock for many companies, since the industry had previously been enjoying steady growth. Balances of -22 per cent were recorded for both the value and volume of business.

Business volumes in the consumer services sector, which includes hotels, restaurants and travel companies, also declined. The CBI recorded a balance of -25 per cent, which represented an ongoing and slightly intensified fall for the industry.

Richard Woodhouse, head of fiscal policy at the CBI, said the reductions in business volumes during the last quarter have coincided with a drop in consumer spending, as households come under increased financial pressure.

"What is new, and was not expected this quarter, is that spending on business and professional services also fell, something not seen since November 2009," he remarked.

Meanwhile, the latest available figures from the government show that services output increased by 1.6 per cent in June compared the same month last year, with business services and financial firms seeing the biggest growth. However, on a month-by-month basis, output fell by 0.1 per cent.

"The small decline in June is mainly due to weakness in transport, storage and communication, which fell by 1.6 per cent, and distribution, which fell by 0.7 per cent," said the Office for National Statistics.

"These falls more than offset the growth in hotels and restaurants, which grew by two per cent, and government and other services, which grew by 0.2 per cent."