Business confidence in the UK services sector has plunged this month as companies grapple with mounting costs, falling sales, and weakening demand. The Confederation of British Industry’s (CBI) latest quarterly survey revealed that optimism has deteriorated significantly, raising concerns for growth and employment in the remainder of the year.
The poll found that most service firms remain pessimistic about their prospects, with profit margins squeezed by rising employment costs and subdued demand. This downturn has translated into reduced hiring and cuts to investment, leaving companies increasingly focused on short-term survival strategies rather than long-term growth.
Consumer services firms reported a negative outlook for the eighth consecutive month, while services selling to other businesses saw a fourth straight month of declining activity. Overall business optimism fell, with the balance of firms expecting improvement dropping from -43% in May to -29% in August.
CBI deputy chief economist Alpesh Paleja said the survey “painted a grim picture of the services sector,” warning that small areas of resilience were not enough to reverse the trend that has been building for more than a year.
Services make up about three-quarters of the UK economy, making the sector a key bellwether for wider economic health. The findings echo recent data from S&P Global, which showed the largest fall in new orders in nearly three years, and a Resolution Foundation study that found unemployment climbing from 4.7% in June to 5% in August as firms delay new hires.
The grim outlook places additional pressure on the government ahead of the autumn budget, where the chancellor has pledged to boost growth and jobs. Meanwhile, the Bank of England faces a policy dilemma, with rising joblessness fueling calls for interest rate cuts, while persistent inflation keeps pressure for higher borrowing costs.
Official figures this week also highlighted profit challenges in UK manufacturing, where factory gate prices rose 1.9% in the year to June—the fastest pace in two years—driven largely by higher food, textiles, clothing, and leather goods prices.
