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Growth slows in services sector as optimism falls

Growth in business volumes slowed in business and professional services sector in the three months to August, while optimism fell sharply, according to a new survey.

The quarterly study by the Confederation of British Industry, the first since the UK's decision to leave the European Union, showed business volumes in business and professional services firms, which include accountancy, legal and marketing firms, were unchanged on the quarter after rising in May.

However, optimism fell at the fastest rate in nearly five years - November 2011.

There was moderate growth in business volumes for consumer services companies, which include hotels, bars, restaurants, travel and leisure.

Nevertheless, the drop in optimism was even sharper, dropping at the fastest pace since the height of the financial crisis in February 2009.

Business expansion plans in business and professional services were the weakest since May 2012.

Employment growth in both sub-sectors remained above average, and was at the strongest level this year in consumer services. However, it is expected to slow over the next quarter. Growth in spending on training and retraining also remained resilient.

Across the sector as a whole, investment plans for the year ahead were brought back into line with long-run averages, having seen a stronger start to 2016. Business and professional services firms expect to maintain investment spending on land and buildings, while spending on vehicles, plant and machinery will be pruned back over the next year.

In consumer services, investment in land and buildings will continue to grow, but at a slower pace, while expenditure on vehicles, plant and machinery will be flat on the year. IT expenditure will continue to see robust growth in the sub-sectors.

Anna Leach, CBI head of economic analysis and surveys, said: "While the service sector has been rocked by the stormy waters of Brexit, especially when it comes to firms' sense of optimism, the actual slowdown in growth on the office and shop floor has been relatively modest.

"It's encouraging that employment numbers have remained robust, especially in the consumer services sector. But looking ahead, the service sector faces a challenging environment in which to grow and invest, with uncertainty about demand weighing on firms' minds.

"To shore up confidence across the economy, the Government must clearly communicate plans for negotiations to leave the EU, and demonstrate its commitment to stimulating growth and driving investment with an ambitious Autumn Statement."

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