UK services sector sentiment falls at fastest pace in two years, CBI says

8:10 pm Wednesday, November 27th, 2024

LONDON (Reuters) – Business sentiment in Britain’s services sector is falling at the fastest rate in two years, partly as a result of tax rises in finance minister Rachel Reeves’ first budget on Oct. 30, the Confederation of British Industry said on Thursday.

The downturn was sharpest in consumer services – where large employers will bear the brunt of a 25 billion pound ($32 billion) rise in payroll taxes – but the mood at business and professional services companies soured too, the CBI said.

On Monday Reeves told the CBI’s annual conference that she would not raise taxes in the same way again, after the CBI’s chief executive said businesses had been caught off guard by the scale of the tax rises.

Thursday’s survey showed that optimism among consumer services businesses sank to its lowest since August 2022 at -55 in November, down from -19 in August, while among business and professional services sentiment fell to -29 from +9.

The index represents the difference between the percentages of businesses which say they are more optimistic and those who are more pessimistic.

“Falling sentiment, weaker hiring intentions and firming cost pressures are all at least a partial response to the forthcoming rise in employer National Insurance Contributions,” CBI Deputy Chief Economist Alpesh Paleja said.

Business and professional services firms said their profitability had fallen by the most since August 2020 and all types of services firm said they would invest less.

British business investment is low by international standards and this is widely seen as one cause of Britain’s lower economic productivity than its major peers.

The gloom in the CBI survey has also been reflected in other surveys. Last week the S&P Global purchasing managers’ index pointed to economic contraction for the first time in 13 months.

The CBI survey was based on responses from 441 firms collected between Oct. 29 and Nov. 14.

($1 = 0.7898 pounds)

(Reporting by David Milliken, editing by Andy Bruce)