Gloom engulfs UK services firms as costs and prices soar

PESSIMISM is gripping the UK services sector as consumers and companies alike struggle to cope with soaring prices, according to the nation's biggest business lobby.

A survey by the Confederation of British Industry (DBI) found demand wilting and profits under continued pressure, despite firms increasing prices aggressively in an effort to cover their costs. In response, many are scaling back investment plans.

The report comes amid speculation that Chancellor Rishi Sunak is preparing to announce billions of pounds of support to help Britons facing the worst cost of living crisis since at least the 1950s. Some economists warn that the economy risks sliding into recession unless he intervenes on a significant scale.

"The government should act now in support of those on lower incomes but also help restore business confidence and get firms investing," said Ben Jones, lead economist at the CBI.

The business lobby specifically called for an extension of the Recovery Loan Scheme, which was designed to help businesses bounce back from the coronavirus pandemic and is due to expire in June. The program allows lenders to issue loans that are 80 per cent backed by the government.

Services are crucial to the outlook because they account for around 80 per cent of UK economic output. The CBI's quarterly survey of the sector found:

• An index of optimism crashed deep into negative territory in both business and professional services and in consumer services
• Consumer services saw growth in business volumes come to a standstill in the last 3 months, and an outright contraction is anticipated over the summer
• Cost pressures are expected to intensify but firms are sharing the burden with their customers by allowing profits margins to absorb some of the blow
• Selling prices are nonetheless rising strongly - at a record pace in business and professional services and at the fastest rate since 2006 in consumer services
• Planned investment weakened, though spending on information technology is expected to keep growing at a "robust" pace BLOOMBERG