Oil price rises hit service firms

Rising oil prices and interest rates have hit confidence in British service firms but manufacturers have recorded their best spell of orders for nine years, two new surveys showed today.

The CBI said consumer services companies such as cinemas and tour operators had suffered their first fall in profits in a year.

High oil prices were leading to the fastest rise in costs for three years in road haulage and air travel firms.

A survey of 185 firms showed the one bright spot was in the hotels, bars and restaurants sector, which was buoyed by the European soccer finals in June.

But confidence in consumer firms has fallen and expansion plans are expected to be reined back in the coming year.

Ian McCafferty, chief economic adviser of the CBI said: ““Service sector confidence has been shaken by a challenging business climate.

“Oil prices have increased by well over a third since the turn of the year and interest rates have risen five times since November 2003.

“These factors have made it more difficult for firms to improve profitability. Consumer services companies have faced a slowdown in demand and business services firms have been hit by escalating costs.”

Another survey by the Engineering Employers Federation (EEF) showed no signs that rising oil prices were derailing the manufacturing recovery.

Growth in motor vehicles and other transport equipment in the past few months was especially strong.

Investment intentions in manufacturing firms appeared firmer and should increase in the coming year, said the EEF.

Chief economist Steve Radley said manufacturing remained in good health, adding: “With rising costs eating into profit margins and evidence of slowdown in the housing market, now is a good time to pause for breath on interest rates.”