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EU referendum concerns 'dent optimism in services sector'

Published 26/05/2016

Concerns about the EU referendum have hit business confidence, research shows
Concerns about the EU referendum have hit business confidence, research shows

Concerns over the European referendum and slowing global growth have dealt a blow to optimism in the services sector, according to a report.

The Confederation of British Industry's (CBI) Service Sector Survey found that firms were more cautious about the business climate now than at any other point in the last three years.

Its findings revealed that 27% of companies in business and professional services were less optimistic in the three months to May, while 22% were more optimistic, leaving a balance of minus 5% - its lowest result since August 2012.

Optimism in consumer services also reached its lowest ebb since November 2012, with 25% of firms saying they are more optimistic compared to three months ago, while 16% were less optimistic. It saw the overall balance slip to plus 9%, down from plus 15% in February.

But the CBI said the survey of 175 firms showed employment growth, investment intentions and training expectations were still robust.

Rain Newton-Smith, CBI director of economics, said business conditions and demand were holding up well for the services sector, despite some consumer firms "feeling the pinch" from rising costs.

She added: "Encouragingly, employment growth remains steady and services firms have signalled they will continue to keep investing in new technologies and skills.

"Despite this, companies are sounding the warning bell as they get to grips with increasing uncertainty, including around the outcome of the EU referendum, the fallout from financial market volatility earlier this year, more downbeat global growth, and a lack of clarity on how the apprenticeship levy will work in practice."

The study found that 33% of businesses in consumer services - which includes hotels, bars and restaurants - saw a rise in business volumes in the three months to May, compared to 24% saying they shrunk, with a balance of plus 9%.

However, consumer services firms saw profitability fall for the first time since August 2013, minus 9% in the quarter to May.

The CBI said profitability had improved in business services - which includes accountancy, legal and marketing firms - with an overall balance of plus 2%, up from minus 20% in the previous quarter.

Britain's powerhouse services sector accounts for more than 78% of the UK economy.

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