º£½ÇÊÓƵ business confidence took a nosedive in the three months leading up to May as tax increases, introduced by Rachel Reeves, started to take effect, with firms now warning of further difficulties ahead.
Optimism among consumer services has now been in decline for eight consecutive months, currently standing at -42%, while business value levels plummeted to -56%, a significant drop from -44% in February, as reported by .
In the meantime, average selling prices skyrocketed to 32%, more than double the long-term average of 14%.
Business and professional services saw a decline in optimism to -43%, compared to -28% in February, as per the CBI's Sector Services Survey, which gathered data from 215 firms, utilizing percentage indicators to highlight key business trends, such as costs, sales, and hiring.
Alpesh Paleja, CBI's Deputy Chief Economist, stated: "Businesses continue to cite the impact of higher employer NICs and the National Living Wage both hitting their own cost base and depressing demand from clients."
Survey respondents expressed concerns about the challenges ahead, with business and professional services anticipating a decline in profitability to -47% over the next three months, following a -34% decline in the three months leading up to May.
In the consumer services sector, there are expectations of further job cuts, with the number of employees predicted to drop to -36% over the next quarter. The Chancellor has raised employer's national insurance contributions by 1.2 percentage points to 15%, with the changes set to take effect in April.
Additionally, the national living wage saw an increase to £12.21 from £11.44.
As employment costs have risen, sentiment regarding employment within the sector dropped to -28%, leading to a reduction in workforce numbers among firms.
Double blow of rising costs and prices
Paleja commented on the challenging first half of the year for the services sector, highlighting the "It's been a tough first half of the year for the services sector. The double whammy of both cost and price pressures ramping up is particularly worrying, given the Bank of England's concern about the persistence of domestic inflationary pressures."
of escalating costs and prices as particularly concerning amid the Bank of England's worries about persistent domestic inflationary pressures.
Inflation saw a rise to 3.5% in April, placing a heavier cost burden on businesses' budgets.
Month-on-month consumer price inflation climbed by 1.2%, surpassing its previous monthly high in October 2022.
Reeves is scheduled to present her Spending Review and Industrial Strategy on June 11, facing the challenge of fostering economic growth while managing public service spending, all while adhering to her "iron clad" fiscal rules.
Paleja emphasised the importance of the upcoming government review to "unlock growth enablers."
She advocated for actions such as "making it easier to invest in skills and taking measures to reduce the regulatory burden on business – to boost business confidence, giving firms the right incentives to invest and grow."
