The UK’s service sector is stuck in a rut. Profits have now declined for 17 consecutive rolling quarters and businesses say there’s little relief in sight. Rising costs, subdued demand, and a string of government-driven employment cost hikes are squeezing margins hard. Here’s what the latest CBI data tells us.
17 Quarters and Counting: The Profit Slump Deepens
The Confederation of British Industry’s (CBI) latest service sector survey paints a bleak picture. A weighted balance of -28% of business and professional services firms reported falling profitability in the three months to February — extending a streak that began in February 2022.
Consumer-facing firms had it even worse: -49% reported deteriorating profitability. That’s nearly half the sector bleeding red.
And it’s not turning around any time soon. Both subsectors expect profits to keep falling next quarter, albeit at a slightly slower pace.
The Culprit? Costs That Won’t Stop Climbing
Costs have risen for 22 consecutive quarters — and selling price inflation simply hasn’t kept up. That gap is the engine behind the margin squeeze.
A weighted balance of 43% of firms saw costs per employee rise in the period, with 54% bracing for further increases ahead.
The biggest driver? Government policy. Chancellor Rachel Reeves’ first Budget hiked employer National Insurance contributions (NICs), and the minimum wage has climbed over 10% since the current government took office. For labour-intensive service businesses, that’s a body blow to the bottom line.
Jobs Are on the Chopping Block
When profits shrink and costs climb, headcounts follow. A balance of -15% of firms cut staff during the period — and employment is expected to fall further, particularly among consumer service firms.
Charlotte Dendy, Economic Surveys & Data Manager at the CBI, summed it up: “Cost pressures continue to outpace selling price inflation, while demand remains subdued. This has squeezed profit margins and prompted firms to scale back headcounts.”
What Businesses Want From the Spring Statement
With the Chancellor’s Spring Statement due, the CBI is calling for action. Dendy said firms want the government to find “appropriate landing zones” on the Employment Rights Act and fast-track cuts to regulatory red tape — both of which are directly inflating the cost of doing business.
In short: less burden, more breathing room.
The Bottom Line
Seventeen quarters of declining profitability isn’t a blip — it’s a structural problem. Rising employment costs, weak demand, and a mounting regulatory load are grinding down service sector margins. The Spring Statement is a chance for the government to ease the pressure. Whether it delivers is another question entirely.
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FAQ
Q1: Why have UK service sector profits been falling for so long?
A: A combination of rising costs — particularly employment costs — and subdued demand has outpaced firms’ ability to raise prices. The result is a prolonged squeeze on margins that began in early 2022.
Q2: How has the government contributed to rising business costs?
A: The Reeves Budget increased employer National Insurance contributions, and the minimum wage has risen over 10% since the government took office — significant burdens for labour-heavy service businesses.
Q3: What’s the difference between business/professional services and consumer services in this data?
A: Business and professional services cover firms like consultancies and financial services; consumer services cover retail, hospitality, and similar sectors. Consumer-facing firms reported sharper profit declines (-49% vs -28%).
Q4: What is a ‘weighted balance’ in CBI survey data?
A: It’s the percentage of firms reporting an increase minus those reporting a decrease, with larger firms given greater weight. A negative figure means more firms are reporting declines than improvements.
Q5: What are businesses asking for at the Spring Statement?
A: Firms want clearer outcomes on the Employment Rights Act and faster regulatory reform — both seen as key to reducing the high cost of operating in the UK.
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Effective Date: 15th July 2025
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