Optimism surges in UK service sector

As the pandemic loosened its grip across the UK this spring, confidence in the service sector - which accounts for more than three-quarters of GDP - surged to new highs, according to a new survey.

Union Jack flag waving in front of the UK Houses of Parliament in London
The latest quarterly 'Service Sector Survey' from the Confederation of British Industry (CBI) found that, in the three months to May, optimism across business and professional services saw a record improvement, while even in the consumer services sub-sector, which has been hardest hit by coronavirus lockdowns, sentiment increased at its fastest pace since May 2014.

Consumer services volumes continue to decline

But although business and professional service volumes also rose in the three months at a record pace, consumer services volumes continued to decline, albeit at a much slower pace than previously. And both sub-sectors were confident of strong growths in volumes in the quarter ahead."There was more positive news in terms of profitability, with both sub-sectors returning to growth. This looks set to continue into the next quarter, with the pace of growth set to accelerate across the service sector," the CBI reported on Thursday.Across the sector as a whole, employment also showed signs of significant improvement, with consumer services experiencing the strongest growth since the end of 2015. Meanwhile, business and professional services saw the fastest growth in five years.Workforces in both sub-sectors - but especially in business and professional services - are expected to continue growing over the coming three months.The survey found that investment intentions for the year ahead were also more positive, with expectations for IT spending in particular rising sharply across both sub sectors. In fact, spending plans among consumer services companies were the strongest in more than 20 years.Ben Jones, principal economist at the CBI, said: "With the reopening roadmap on track and the vaccine rollout delivering, it’s no surprise to see an uptick in optimism across the sector. Both sub-sectors are expecting strong business growth over the next few months as restrictions continue to lift.“Strong intentions for IT spending point to a sector that has adapted and is adapting to new ways of working and service delivery. Clarity on future social distancing requirements and workplace testing would go further towards smoothing the route to recovery.”

UK Hospitality

Meanwhile, Kate Nicholls, the chief executive of UK Hospitality, said that despite substantial progress being made, the last month had been “far from a champagne moment for the industry” after the cumulative damage from repeated pandemic closures over the past year.Writing in the Guardian on Thursday, she said any delay to the government’s reopening roadmap would require Chancellor of the Exchequer Rishi Sunak to bring forward a fresh package of financial support and to consider extending the furlough scheme.“At this point, any delay to the removal of restrictions on June 21 will be nothing short of catastrophic for a sector that has already lost £80 billion in sales – two-thirds of its pre-pandemic revenue – over the past year," she said.

Read more news and views from David Sapsted.

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