Supply chain · 29 November 2018

Hotel and bar owners take biggest blows as UK economy deteriorates

Hotels and bars reported the steepest drop in profitability in a year

Hotel owners, travel companies and accountants have seen their profits bashed as confidence in the health of the UK economy begins to deteriorate, according to new survey findings.

The latest CBI Services Sector survey found that optimism fell sharply in the three months to November, as business volumes and profitability both declined.

Business and professional services firms such as accountants, lawyers and marketing reported that profitability was unchanged for a second successive quarter, while consumer services such as hotels, bars, travel and leisure firms reported the steepest drop in profitability in a year. Profitability is expected to decline in both sub-sectors over the quarter to February.

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Amongst companies in the business and professional sector optimism fell at the fastest pace since November 2016 and sentiment in the consumer services sector, also dropped again after improving in the quarter to August.

The business and professional services sector saw growth in business volumes stall, following a steady expansion earlier in 2018, with a slight decline expected in the three months to February. Meanwhile, consumer services firms reported a steep drop in business volumes and also expect a further fall next quarter.

The survey found that cost pressures eased slightly in both sub-sectors but remained above average. Selling prices increased at a steady pace in business and professional services, but price inflation slowed in consumer services. Price inflation is expected to pick up moderately in both sub-sectors next quarter.

Overall economic growth is expected to remain subdued, reflecting weak household income growth and the drag on investment from Brexit nerves.

Rain Newton-Smith, CBI chief economist, said: “Brexit uncertainty continues to take its toll on the UK’s services firms. Volumes and profitability are under pressure, and optimism about the business situation is falling across the sector.

Services firms expect to be operating in a challenging environment over the next quarter and beyond, with demand set to weaken in the coming three months and firms seeing little prospect of expanding their businesses in the year ahead.”

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