Consumers reining in spending on luxuries, says CBI

Tuesday 27th May 2008

Consumers appear to be tightening their belts and spending less on luxuries, the latest figures from the Confederation of British Industry (CBI) have revealed.

The CBI says the last three months have seen business volumes for hotels, bars and restaurants, cinemas and gyms at their lowest since the end of 2001. At the same time, it says, costs accelerated rapidly and profitability sank at a record rate.

Neither consumer nor business services firms are positive about business expansion over the coming year adds the CBI report while it says many businesses have become more concerned about their ability to raise external finance and the cost of doing so.

The only consumer services sector to report growth in business volumes over in the past three months was the travel sector. But the CBI says firms incurred rapid cost rises and, with limited ability to pass these onto customers, their profitability fell at the fastest rate for five years.

Demand for leisure and personal care services - such as gyms, hairdressers or cinemas - fell markedly in the last quarter, as did spending in hotels, bars and restaurants. Profitability of hospitality firms fell at a record rate and numbers employed have fallen for two quarters in a row.

Firms selling professional services to businesses, such as lawyers, accountants, architects, IT and recruitment firms saw business volumes grow in the last three months, but at rates much lower than those of 2007.

Meanwhile, firms transporting goods & post saw business levels fall faster than they have since just after the survey began in 1998, with profitability the weakest for eight years and numbers employed decreasing fast.

Ian McCafferty, the CBI’s chief economic adviser, said businesses were concerned about their business prospects.

He said: "Consumers are reining in spending on leisure, entertainment and eating out, while professionals offering services such as accountancy, property and law have seen their profits flatten off as costs continue to grow strongly."

Bu Mr McCafferty would not go as far as to claim the latest data indicated a recession was now more likely saying that while some businesses had seen a decline in business volumes "some exceptions" existed.

The fact that travel companies were reporting healthy demand for holidays in the past three months, he said, showed people were more inclined to take a well-earned break as rising costs put greater demands on household spending, rather than spend money on smaller luxuries.

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