New CBI survey data shows service sector activity declined faster in May than April, with firms expecting continued falls over the next quarter.
The volume of business across UK services fell at an accelerating pace in May, according to the latest survey from the Confederation of British Industry. The figures show both business and professional services alongside consumer services experienced steeper declines than the previous month.
The CBI, which represents around 190,000 businesses across the UK, reported that May’s downturn followed an already weak April reading. This suggests the service sector weakness is deepening rather than stabilising.
Expectations Point to Continued Decline
Firms expect volumes to keep falling over the next quarter. But there’s a small silver lining – the pace of decline will likely be slightly more modest than current levels across both sub-sectors, suggesting the worst of the downturn may be behind us.
The survey uses net balances comparing firms reporting increases versus decreases in activity. Negative balances indicate more businesses are seeing falling activity than rising demand.
These findings align with broader economic weakness reported in other CBI surveys this year. Manufacturing data has shown business optimism and export prospects falling at their fastest rates since the start of the COVID-19 pandemic. Retail and distribution surveys have similarly reported significant declines in sales volumes.
Services Dominate UK Economy
The service sector’s struggles carry particular weight given its massive economic footprint. Around 80% of UK gross value added comes from services, making any sustained downturn a major concern for overall growth.
Business and professional services – including accountancy, legal, marketing, consultancy and IT firms – are sensitive to corporate spending cycles. When companies tighten budgets, these services often face reduced demand first.
Consumer services covering hotels, restaurants, leisure and travel depend heavily on household discretionary spending. Continued weakness here suggests consumers remain cautious about non-essential purchases.
Manufacturing Adds to Concerns
The service sector troubles come alongside sharp deterioration in manufacturing sentiment. Recent CBI industrial surveys showed business optimism plummeting at rates not seen since the pandemic’s onset. Output and orders have also declined, painting a picture of broad-based economic softness.
Retail data has been similarly downbeat, with strongly negative sales balances persisting since mid-2023. This extended period of weak retail activity reinforces the pattern of subdued demand across multiple sectors.
The Bank of England and government departments regularly monitor CBI surveys as timely indicators of economic momentum. While they complement rather than replace official statistics, they provide early signals of changing business conditions.
Yet some economists caution against over-relying on CBI data alone. As a membership organisation, it reflects participating firms’ views and may under-represent very small businesses or specific regions.
Source: @CBItweets
Key Takeaways
- Service sector business volumes fell faster in May than April across both business and consumer services
- Firms expect continued declines over the next quarter, though at a slightly more modest pace
- The weakness adds to concerning signals from manufacturing and retail surveys showing broad economic softness
What This Means for Kent Residents
Kent’s significant service sector base – including professional services in Maidstone and Canterbury, plus coastal hospitality and tourism – faces the same headwinds affecting the broader UK economy. Local businesses in accountancy, legal services, marketing and IT may see slower order pipelines and delayed projects as corporate clients cut spending. For households, this could translate into fewer job opportunities in services, reduced overtime hours, or delayed wage increases, though some may benefit from promotional pricing as businesses compete for customers in a weaker market.
The CBI’s latest findings underscore the challenges facing the UK economy as multiple sectors experience simultaneous weakness. While the expected moderation in the pace of decline offers some hope, the broad-based nature of the downturn suggests recovery may take time to materialise across the service-dominated economy.