The British Service Sector Is Losing Confidence

  • More companies are less confident about business climate
  • Companies choose to invest in IT over machinery and buildings

Businesses in the U.K. service sector are increasingly pessimistic about the future as sales slow and costs rise, according to the Confederation of British Industry.

More companies surveyed reported that they were less confident about the business situation in the third quarter compared with the second quarter, the CBI said in a report published Monday. The investment picture was more mixed, with expenditure on IT expected to grow but investment in buildings and machinery being scaled back. Hiring intentions remained steady.

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Chancellor of the Exchequer Philip Hammond last week announced measures such as a national investment fund to boost the country’s ailing productivity. While the pound’s weakness following the Brexit vote has helped the manufacturing sector boost exports, it has largely overlooked the service sector -- the U.K. economy’s biggest contributor.

“Optimism among firms in the U.K. service sector has fallen this quarter, as rising costs and sluggish volumes of business have led to a drop in profitability,” said Rain Newton-Smith, chief economist at the CBI. “The Autumn Statement will have offered some comfort to businesses as the government looks to build on the U.K.’s economic strengths, with an industrial strategy that helps deliver growth across the country.”

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