Sentiment within the service sector deteriorated over the quarter to November, against a background of falling business volumes and profitability, highlighting a continuation of difficult conditions across the sector - according to the CBI's quarterly service sector survey.

In the three months to November, business & professional services volumes fell at the same pace for the third consecutive month, while the pace of decline in consumer services volumes eased.

As a result, optimism in the service sector deteriorated at the fastest pace since the start of the year. Next quarter, volumes in business & professional services are set to stabilise, while modest growth is tipped to return in consumer services.

However, growth in average costs eased in the quarter to November, marking the weakest growth since May and August 2021 for business & professional and consumer services firms respectively. Next quarter, cost growth is set to accelerate in both sub-sectors.

Average selling prices witnessed a similar trend with prices continuing to grow in the service sector, but at a slower pace.

Growth eased to the slowest pace since February 2021 in business & professional services while they slowed marginally in consumer services. Next quarter, consumer services prices are anticipated to grow further but at a weaker rate while growth is set to pick up slightly in business & professional services.

Despite an easing in average cost growth, paired with declining volumes, profits continued to fall at pace across the sector in the quarter to November. Next quarter, the ongoing fall in profits in business and professional services is expected to continue at a faster rate, while it is set to fall at the same pace in consumer services.

Meanwhile, business and professional services employment stagnated over the quarter to November following two consecutive months of modest growth. In consumer services, employment continued to grow at pace in the three months to November. Next quarter, sub-sector employment conditions are set to trade places with growth in consumer services stalling, and business and professional services headcount growth accelerating.

Against a backdrop of higher interest rates, the cost of finance remains a key factor in limiting investment for services firms, reaching a record high in consumer services and the third highest percentage in survey history for business & professional services.

Nevertheless, uncertainty about demand remains the top concern cited across the service sector. As a result, although investment intentions remain weak they have seen a slight improvement compared with the previous quarter.

Charlotte Dendy, CBI economic surveys and data manager, said: "Our latest survey highlights yet another difficult period for the service sector with volumes and profitability falling. While cost and price growth eased last quarter, firms will be bracing for stronger growth across both in the months ahead, putting additional pressure on the sector.

"Although measures announced in the Chancellor's Autumn Statement will be transformative for business investment overall, services firms are likely to see less of a benefit than those in other sectors.

"With trading conditions set to remain challenging for some time, it's important for the government to find ways to support our world class services sector, including as we look ahead to the Spring Budget."