BRITS JET OFF TO AVOID FINANCIAL GLOOM

27th May 2008

CONSUMERS are still splashing out on summer holidays but have cut back on entertainment and eating out, according to the Confederation of British Industry.

In its latest quarterly survey of consumer services firms, published today, the bosses’ organisation found activity had slumped at the fastest rate since 2001.

It is the first in a series of economic indicators being published this week that are expected to show confidence has deteriorated in the face of tighter credit and higher utility, food and fuel costs.

The CBI said profitability in businesses such as hotels, bars, restaurants and cinemas, had slumped to their lowest level for at least 10 years, affected by low spending and higher costs.

Travel companies, the only firms to report growth in business during the past three months, were also hit by soaring costs and reported their lowest profitability for five years. However, although holiday operators were finding it difficult to pass on higher prices to consumers, businesses in other sectors were increasing their charges.

The CBI’s chief economic adviser, Ian McCafferty, said companies in the services sector were concerned about their prospects, although he added: “People are more inclined to take a well-earned break as rising costs put greater
demands on household spending.”

Companies providing services to businesses, such as lawyers, accountants, IT and recruitment firms, said they were less affected by the downturn and enjoying some growth, although they said profits were flat.

Global Insight’s chief UK and European economist Howard Archer said the CBI’s distributive trades survey, which covers retail, was likely to show consumer confidence had slumped still further when it published this Thursday.

“Consumer spending is likely to be reined in during the coming months by muted disposable income growth, a serious squeeze on purchasing power coming from higher utility bills and elevated food prices, a substantially softer housing market, tight lending conditions and increased debt levels,” said Archer.

“Many home owners are also re-fixing their mortgages at significantly higher rates and, finally, unemployment has started to rise.”