Belfast Telegraph

Friday 22 August 2014

Hotel and pub profit margins dip

Volumes in the consumer services sector, including pubs and restaurants, rose over the three months to August but profitability dropped

Hotels, pubs and restaurants have been forced to tighten their belts as profit margins dry up despite a surge in trade, according to figures from the CBI.

Volumes in the consumer services sector, which also includes the travel and leisure industries, rose again over the three months to August - at their fastest rate for six years. But profitability dropped unexpectedly as price growth stalled and jobs also fell, the survey showed.

The findings may suggest that firms faced with rising costs are not passing them on to customers amid tough competitive conditions.

Meanwhile, figures from business and professional services - including accountancy, law and marketing - painted a rosier picture, with both volumes and profitability up.

The data is the latest indicator of the health of the British economy after revised official figures last week showed it grew by 0.7% in the second quarter, better than previously thought.

Services, the powerhouse of the economy, represent three-quarters of output and have been central to leading the UK out of the doldrums, so a continued acceleration in volume growth will be welcome. But signs of a drop-off in profitability among consumer-focused firms may add to fears about the sustainability of the recovery.

Stephen Gifford, CBI director of economics, said confidence had risen strongly across the services sector and the outlook was positive in the short term.

"But consumer services firms are a bit more worried about the longer term, and have scaled back their investment and expansion plans," he added. "Conditions remain tricky as households grapple with the prolonged squeeze on real incomes and business confidence remains vulnerable to any adverse developments in the global economy."

The survey found that a balance of 15% of companies in consumer services saw business volumes grow, a level that has not been reached since August 2007. Optimism was also high, with a positive reading of 28%.

However, fewer firms saw profitability increase than saw it decrease - giving a negative 15% reading, the worst since February last year, with a further fall expected over the next three months.

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