Service providers see profits fall as costs increase

27 May 2011

29 May 2011 | Lindsay Clark

Suppliers in the service sector have seen their profits fall over the last three months despite a strong market, according to the CBI.

Higher costs are causing an unexpected decline in profitability among business and professional service firms. The number of companies saying profits were falling was 17 percentage points higher than the number of businesses that said they were rising.

A report compiled frominterviews with 175 firms, shows that selling prices for services firms also declined, with the amount of companies saying they fell outstripping those that said they rose by 7 percentage points. However, this was the closest gap in perception since August 2008, when the balance was two points.

Meanwhile, growth in total costs per person employed is climbing. The difference between those firms saying costs are rising than those saying they are falling is 23 percentage points. While those thinking it will grow in the next three months is 28 points.

Ian McCafferty, CBI chief economic adviser, said: “Business and professional services firms have seen further growth in the volume and value of trade in the past quarter, albeit fairly modest, and these look set to strengthen in the coming three months, with expectations the highest since 2007.”

In professional services, the volume and value of business rose for the second successive quarter. The rise in the value of business was a balance of plus 12 points, which was the fastest since November 2007.

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