Services fall 'worst since 2001'

Consumers cut back on dining out and the cinema, but spent on holidays

Companies such as restaurants, bars and cinemas have had their biggest drop in business activity since 2001, according to the employers' group the CBI.

In its quarterly survey of the service sector, the CBI said that only travel firms had reported growth in activity.

Profitability across the service sector as a whole was at a decade-low.

"Consumers are reining in spending on leisure, entertainment and eating out," said Ian McCafferty, the CBI's chief economic advisor.

"People are more inclined to take a well-earned break as rising costs put greater demands on household spending," he added.

Number crunching

In its survey, which covered the first three months of 2008, the CBI said that the balance of consumer services firms reporting a fall in business volumes was -44%, the lowest since November 2001.

Profitability was the weakest since the survey began in 1998 and employment in the sector fell for the second quarter in a row.

However, companies offering professional services, such as law, accountancy and IT firms, fared better and reported growth over the past three months.

The findings chime with the Bank of England's monthly report on the industry, which found the sector hit by the credit crisis and consumer spending downturn.

Earlier this month, Bank of England governor Mervyn King gave a bleak outlook for UK living costs, saying that consumers would be squeezed by high food and energy prices, and a drying up of the credit markets.