Signs that the credit crisis is hitting homes have emerged, according to the Confederation of British Industry (CBI).
Figures from the CBI's latest Services Sector survey, which show low business volumes for the sector, suggest that consumers are tightening their purse strings as they face the reality of the credit crisis.
rates, fuel bills
and food costs rise, it seems the UK is being forced to cut back on non-essential spending. A rise of 15 per cent has been forecast for household utility bills as the price of oil recently hit new highs of more than $135 a barrel.
Just last week the Office for National Statistics (ONS) reported a fall in retail sales of 0.2 per cent from March to April this year, and the latest research from the CBI supports these figures.
According to the CBI, the volume of business for the consumer services sector has fallen sharply in the last three months, and the balance of 44 per cent was the lowest since November 2001. Business expansion in the sector has also suffered at the hands of the credit crisis, down by 39 per cent, with the majority (73 per cent) of businesses citing a fall in sales and demand as the reason.
As the consumer service sector includes hotels, bars, restaurants, cinemas and gyms, these figures are an indication of the way Brits have been forced to change their spending habits. The consumer boom officially peaked in the late Nineties when consumer spending was growing at more than 4.5 per cent; however, spending has remained relatively high until now.
Commenting on the sales slump, Ian McCafferty, the CBI's chief economic advisor, said: "Consumers are reining in spending on leisure, entertainment and eating out, while professionals offering services such as accountancy, property and law have seen profits flatten off as costs continue to grow strongly."
The news indicates that Brits are preparing for the worst amid speculation of a recession. Financial expert, George Soros who predicted the credit crisis gave the Sunday Times his take on the future of Britain's economy. He said: "It's like a Greek tragedy. You can see the trouble coming but you can't avoid it.
Mr Soros said he feared the worst, commenting that the UK economy looks set to weaken more than the US. "You have a housing bubble in the UK," he said. Household debts are higher than in the US. The banking and financial industry is much bigger as a proportion of the economy in this country, and that's been badly affected."
If Mr Soros' latest insights become a reality, the service sector looks set to suffer further, which could have a detrimental effect on employment and the UK economy.
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