Latest Economic Research Makes Grim Reading

The CBI advised yesterday in its latest service sector survey of an unexpected fall in sales and profits in the three months to the end of November. The statement says that after the modest improvement in the three months to the end of August in both volume and value of business, an even stronger performance had been anticipated. However, while 21% of the businesses polled advised that they had recorded increased profits, 48% reported a fall.

With the service sector widely considered the backbone of the British economy, this is untimely bad news: While the latest economic data out of Japan, the US and the EU looks encouraging and pointing towards a global recovery, it seems that our own economy is not out of the woods yet. The lacklustre outlook is also confirmed by the poll data published by the CBI: While capital expenditure in the service sector and land and buildings as well as vehicles, plant and machinery is expected to drop (30% and 27% more respondents plan to spend less on such investments than plan to invest more), most of the planned expenditure is expected to be for replacement purchases (56%) or to increase efficiency (59%). Moreover, the uncertainty about demand/sales seems to prevent 69% of respondents to commit to capital investments at this time. Also, as far as the business outlook is concerned, 95% of participants in the CBI poll expect the level of demand/sales over the next year to be the predominant factor likely to increase the level of business. Interestingly, 43% of respondents see domestic competition as a threat to the development of their own business.

GfK NOP announced on Monday its latest UK consumer confidence research, showing a drop during November to -17 from -13 recorded for October. Also, the researchers advise that the confidence in the ‘general economy’ over the past 12 months as fallen by 6 points to -59 with the outlook for the coming year being unchanged from the October score at +3. Similarly, the climate for major purchases as retreated by 7 points to -19, a further indication that households may be postponing big ticket purchases for the time being in light of the volatile economic environment.

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