Professional services firms are seeing their sharpest falls in business for a decade as the economic slowdown bites, the CBI has warned.
The business group’s latest quarterly service sector survey found consulting, accounting and legal services firms enduring the worst decline in business volumes and values since 1998.
A balance of 25 per cent of professional services firms also reported lower profits since May with employment falling for the first time in four years.
The CBI said its survey showed the difficulties first encountered in consumer-facing areas such as travel and hospitality were now spreading across the wider sector, which accounts for around three-quarters of the economy.
The gloomy survey come days after official figures showed the UK economy ground to a halt for the first time in 16 years, with zero growth between April and June. Many experts now predict recession – two successive quarters of economic contraction – in the second half of 2008.
The CBI’s economic adviser Ian McCafferty said profitability in the service sector was “clearly under pressure”.
“This pressure, initially confined mainly to consumer services such as hospitality and travel, has now spread to the professional and business services sector, covering areas such as marketing and legal services.
“This reflects much tougher trading conditions for business and professional firms, after a period when business trends had been holding up in the face of the slowing economy.
“Across the service sector, business confidence has fallen and companies are negative about their investment and expansion plans for the year ahead.”
Business and professional services firms are also more worried over inability to raise financing for investment since the credit crunch struck, the survey showed. A balance of 22 per cent – the highest since 1998 – expressed their fears over funding, while expectations for business expansion were also the weakest on record.
The CBI said travel services firms had a “particularly difficult” quarter with business volumes falling at the fastest rate for fives years and profits down for the second successive quarter.
Although hotels, bars and restaurants recorded better than expected business volumes over the past three months, profitability and confidence continued to fall as average increases in selling prices fell behind rising staff costs.
Industry sub-sectors covered by the survey showed varying patterns, the CBI said.
Travel companies, especially, have had a particularly difficult quarter with volumes falling at the fastest rate for five years.
In contrast, hotels, bars and restaurants saw their business volumes and values expand strongly over the past three months, which was much better than expected. Employment and training expenditure for these firms are holding up.
Nevertheless, profitability and confidence continued to fall.
Among business and professional firms, marketing has seen a turn in business conditions over the past quarter. Volumes and values of business and profitability had all been growing strongly for a full year.
However, over the past three months these have all recorded sharp declines, and further falls are expected next quarter. Expectations for business expansion in the next 12 months are also negative for the first time in two years.
Telecoms and computing was the only business and professional sub-sector to avoid a fall in business volumes over the past quarter, and volumes are expected to remain stable over the next three months. Confidence has dipped, firms have cut back on employment for the first time in over a year, and a modest fall in profitability is expected next quarter.