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Sales slump for consumer-based firms

The gulf in the UK's two-speed services sector has widened after a sharper-than-expected slump in volumes for beleaguered consumer-based firms.

The CBI's latest snapshot of the services sector for the last three months showed operators in hotels, bars, restaurant, travel and leisure reported their weakest sales volumes since November 2009. The result was much weaker than forecast, although firms think the pace of decline will slow over the next quarter.

In contrast, business and professional services firms saw the volume and value of their business rise for the second successive quarter.

Despite contrasting fortunes, both sectors have seen profitability squeezed by rises in costs. Business firms said average costs per employee nudged upwards with total costs expected to rise faster over the next three months.

Consumer firms saw costs per employee rise at the fastest pace for three years. Firms have responded by raising selling prices and cutting back on staff. Business-focused firms took on staff over the past three months and employee numbers are expected to rise again over the next quarter.

Ian McCafferty, the CBI's chief economic adviser, said the higher activity in the business-focused sector would help drive the recovery, but conditions on the consumer side would remain tough.

“The survey shows further evidence of weak demand for consumer services in the UK,” he said.

Investment plans reflect the growing divide, with a majority of business firms expecting to grow their business, while consumer firms expect to trim spending on land, vehicles, machinery and IT.

The survey covered 175 firms.