Service sector bounces back with profits and hirings up

The first quarter of 2018 saw the fastest growth of business volumes in the services sector than the previous two years. However, commentators suggest uncertainty continues to prevent strong investment.

Car manufacturing
Business volumes in the UK’s all-important services sector, which accounts for more than three-quarters of the nation’s GDP, grew strongly in the quarter to February, according the latest survey by the Confederation of British Industry (CBI).

Automotive industry recovery

As a separate report from the automotive industry also showed an export-led recovery in British car production, the CBI survey reported a rise in profits in both services sub-sectors for the first time since November 2015.Business and professional services firms, which include accountancy, legal and marketing firms, saw business volumes grow at the fastest pace in more than two years with output expected to accelerate further in the three months to May.

Services sector starts year strongly

In consumer services, which includes hotels, catering travel and leisure companies, volumes increased at their fastest rate in a year after a sharp decline in the previous quarter.Rain Newton-Smith, CBI chief economist, said, “It’s great to see the services sector start the year off on a firm footing. Despite feeling the pinch from high inflation, business volumes have bloomed, profits have grown for the first time in over two years and hiring is on the up.“But there are still some telling signs that the underlying challenges for business, professional and consumer services firms have not gone away. Investment plans are muted amid uncertainty, and plans for expansion among business and professional services firms have turned downwards.“Up and down the country, businesses are plainly worried at the lack of clarity over the UK’s future relationship with its biggest trading partner, the EU. Belonging to a comprehensive customs union would go a long way to allaying these concerns, thus alleviating some of the uncertainty weighing on investment and expansion plans.”
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UK motor industry

Meanwhile, a report from the Society of Motor Manufacturers and Traders (SMMT) showed that while production of cars for the domestic market had fallen for the sixth month in a row, a record number of vehicles had been exported in January.The total of 28,229 cars destined for UK customers was six per cent lower that January last year. However, a record 119,252 vehicles were shipped overseas, an increase of 1.5 per cent on a year earlier. In total, more than 147,000 cars were built in Britain in January, virtually the same total as a year earlier.Mike Hawes, SMMT chief executive, said, “While it is good to see global appetite for British-built cars reach record levels in January, this only reinforces the industry’s increasing reliance on overseas demand.
“Future growth will therefore depend on maintaining our current open trade links not just with Europe but with key international markets.“A transitional deal will be an important first step but, in the long term, a seamless relationship between the UK and Europe must be maintained.“The EU remains the third largest new car market in the world and, given it is on our doorstep, it is not surprising it accounts for more than half of our global exports.”
Relocate Magazine Winter 2017 front cover
Read more about the UK industry in the Winter issue of our magazine
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