Rising costs hitting UK services sector, says CBI

The UK services sector has been hit by rising costs during the three months to May, according to new research from the Confederation of British Industry.

The UK services sector has been hit by rising costs during the three months to May, according to new research from the Confederation of British Industry.

Consumer services, which include hotels, bars and travel agents, saw demand decline over the period as costs rose at their fastest rate since August 2008.

The costs for businesses per person employed grew by 60% between March and May, up from 32% in the previous quarter.

This is the highest level of growth in almost nine years and it is expected costs will continue to rise at a similar rate over the coming three months.

The report is compiled using responses from over 160 businesses, and is published every quarter.

Commenting on the figures, CBI chief economist Rain Newton-Smith said the decline in demand was due to the increased pressure on personal finances.

"Rising inflation is squeezing household incomes, which is hitting demand in the consumer services sector," he said.

"At the same time, cost pressures are building across the board, painting a difficult picture for services firms."

Inflation rose to a higher than expected 2.7% in April, outstripping wage growth and pushing prices upwards.

But the business and professional services sector, which comprises of businesses such as accountancy or legal firms, is also feeling the brunt of the slowdown.

Demand in this area was flat from the previous three months and costs per person increased at the fastest pace since May 2014, up 42%.

Optimism across business services is high, however, with 14% of firms reporting they are feeling more positive about the future than they did three months ago.

But in consumer services the picture is less rosy, with volumes of business expected to fall at their steepest rate since August 2012.