Business confidence across the UK's services sector has dropped sharply, according to the latest CBI survey. The poll reveals that mounting cost pressures and weak demand are squeezing profits, leading firms to cut hiring and investment. The outlook for the remainder of the year remains gloomy, with a majority of companies expressing pessimism about their prospects.
The survey found that consumer services firms reported a negative outlook for the eighth consecutive month, while business-to-business services saw a decline in activity for the fourth straight month. Optimism about the general business situation deteriorated, although the panic induced by Donald Trump's initial tariffs has eased. The balance of firms optimistic about the next quarter fell from -43% in May to -29% in August.
Alpesh Paleja, deputy chief economist at the CBI, described the survey as painting a grim picture of the services sector. He noted that rising employment costs are driving cost pressures higher while subdued demand holds pricing power in check. This has led to lower hiring, investment, and profits, with companies focusing on short-term firefighting.
The CBI findings align with other recent data. A monthly S&P Global survey recorded the biggest drop in new orders in almost three years in July. Meanwhile, a study by the Resolution Foundation suggests the unemployment rate has accelerated from 4.7% in June to 5% in August, as firms delay replacing staff. This puts pressure on the government ahead of the autumn budget, as the chancellor aims to boost economic growth and employment.
The Bank of England faces conflicting signals: rising joblessness may call for an interest rate cut, while high inflation concerns could keep borrowing costs elevated. Official data also showed manufacturers experiencing a similar profit squeeze, with factory gate prices rising at their fastest pace in two years in June.
