Services grow while rest of the UK economy struggles

The dominant services sector is expected to be the best-performing part of the UK economy in the second half of the year as other industries struggle with “tepid” growth, according to a new survey.

The CBI’s latest measure of the private sector found that overall activity was expected to rise in the three months to November, led by an outperformance in services, which account for three quarters of the economy.

According to the CBI’s monthly growth indicator, companies reported a positive balance of 9 per cent for their future growth expectations, compared with negative measures of -8 per cent and -14 per cent in the rolling three months to August and July, respectively.

A bulk of the expected gains came from professional services firms, which reported a balance of 19 per cent on future output in the three months to November, while services on the whole reported a measure of 14 per cent. This offset a decline of -4 per cent in consumer services and a smaller jump of 9 per cent among manufacturers.

“Our surveys paint a very mixed picture across sectors,” Alpesh Paleja, interim deputy chief economist at the CBI, said. “It’s notable that consumer-facing businesses are still struggling and that momentum in manufacturing remains tepid, at best.”

The services sector has been driving economic growth over the past two years and has helped to propel Britain to one of the highest growth rates in the G7 in the first half of this year. However, consumer spending remains below pre-pandemic levels, as people have grappled with stubbornly high inflation and rising interest rates since 2022.

Paleja said expectations for rising private sector output “suggest that the recent momentum in economic growth has been sustained into the second half of this year. As parliament returns from the summer break and ahead of the autumn budget, firms will want to see policies that can help to turn a mixed outlook into a far more positive outcome for all sectors for the rest of the year.

“Whether that’s reducing costs — for instance, through long-overdue business rates reform, or setting out a business tax road map to attract investment. All this can help to deliver the return to long-term sustainable growth that the new government has promised, and firms across all sectors want to see.”

The CBI’s growth measure is compiled using responses from 579 companies, which were surveyed between July 26 and August 14.