Rate hikes hit consumer services sector
Firms selling flights are among the worst affected by the slowdown in spending on consumer services
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Monday, 03, Sep 2007 10:53
A series of interest rate rises has seen spending on consumer services drop, according to new figures.
Sales have fallen across the travel, leisure and personal care sectors over the past three months, according to the latest survey of the services industry released by the Confederation of British Industry (CBI).
The research, published alongside accountancy firm Grant Thornton, showed that hotels, bars and restaurants were the only businesses within the sector to record "a good rate of growth" over the past quarter.
Overall 15 per cent more consumer services firms reported volume growth, as opposed to decline, over the period. But the CBI said that the result "fell well short" of the expected balance of 42 per cent more.
In contrast, the business group said that there had been "strong demand" for professional services, such as those provided by accountants and lawyers.
The survey of 144 firms also found that consumer services companies are not expecting to expand their businesses over the coming year, with operating costs expected to continue climbing at a "rapid rate" over the next 12 months.
"A combination of higher household borrowing costs and poor weather has put a dampener on consumers' spending over the last three months, and on travel and leisure in particular," said the CBI's chief economic adviser Ian McCafferty.
The Bank of England has raised interest rates five times over the past year in a bid to bring inflation and consumer spending under control, with the benchmark rate of interest currently standing at 5.75 per cent.
However many analysts are predicting that monetary policymakers from the UK's central bank will opt to keep interest rates on hold when they meet for their rate-setting meeting on Thursday. Current turmoil on the world's financial markets and a surprise drop in inflation, reported last month, are cited as possible reasons why the Bank will decide not to raise interest rates to 6.0 per cent in the short term.
Meanwhile another business group has reported that the UK's manufacturers are continuing to enjoy healthy growth, despite rising interest rates.
Rising domestic and export orders have boosted sales across the sector in recent months, according to a survey of 866 companies published by the Engineering Employers Federation (EEF).
"Long gone are the days when a strong currency and increases in interest rates would have stopped companies in their tracks," said EEF chief economist Steve Radley, commenting on the results.
However he stressed that current market volatility and a more significant economic slowdown in the US could weaken the outlook for the manufacturing sector.