The services sector grew steadily in the three months to November and robust growth is expected to continue into early 2015, according to the latest quarterly CBI Service Sector Survey.
Profits continued to grow in the consumer sector, aided by higher prices, whereas prices in business and professional services fell to their lowest since May 2013, meaning profits held steady.
Employment increased at its fastest pace for seven years in the business and professional sector, which includes accountancy, legal and marketing firms.
The number of employees in the consumer services sector, which includes hotels, bars, restaurants, travel and leisure firms, also increased.
With skills shortages starting to bite, expenditure on staff training in the consumer sector rose to its highest level for 15 years, and is expected to remain strong.
Training costs are also expected to increase in the business and professional services sector.
The survey of 191 firms revealed that investment rose across the sector, with capital expenditure on land and buildings in the consumer sector reaching its highest level since 2010.
And in business and professional services spending on IT grew to levels not seen since February 2007.
Despite this, optimism about the business situation fell at the fastest rate across the sector since February 2013.
Rain Newton-Smith, CBI Director for Economics, said: “Growth across the services sector is expected to continue into the New Year.
“And it’s good to see investment spending in IT at near record levels.
“But skills shortages are starting to bite, putting more of a break on investment and future growth in consumer services.
“Therefore the spending rise in training in the sector is particularly encouraging.”
Optimism regarding the business situation was at its lowest since February 2013, when the balance was +6 per cent.
This quarter 32 per cent of firms were more optimistic against 6 per cent who were less optimistic, leaving a balance of +26 per cent.
36 per cent of firms reported business volumes as being up, compared to 5 per cent who said they were down in the last quarter, leaving a balance of +30 per cent, a slight increase on the previous three months (+25 per cent).
Expectations for the next quarter (a balance of +32 per cent) are the lowest since August 2013 (+26 per cent)
39 per cent of firms said the number employed had risen, with 11 per cent saying it was down, leaving a balance of +28 per cent, significantly up on the last quarter, when (+5 per cent). Expectations for the next three months remain strong (+25 per cent).
Expenditure on training rose at its fastest rate since May 1999, when the balance was +41 per cent.
This past quarter 41 per cent said spending on training was up, compared with 2 per cent who said it was down, leaving a balance of +39 per cent.
Despite being identified as the most significant factor to limit business expansion in the year ahead, the level of demand (55 per cent) was at its lowest level since May 2007 (42 per cent).
Optimism regarding the business situation hit its lowest level since February 2013 (0 per cent), with 21 per cent of firms said they were more optimistic than three months ago compared to 9 per cent saying they were less optimistic, giving a balance of +12 per cent.
33 per cent of firms said business volumes were up compared to three months ago, and 12 per cent said they were down, giving a rounded balance of +22 per cent. Growth has therefore ticked up steadily since August 2014 when the balance was +16 per cent.
Business growth is expected to remain robust over the next quarter.
49 per cent of firms said the number of employees had increased in the last three months, with 7 per cent saying they were down, giving a balance of +42 per cent, a survey record high.
61 per cent of firms expected the rate of business expansion to increase in the year ahead, with 37 per cent saying they do not, giving a rounded balance of +25 per cent, the lowest since May 2013 (+14 per cent).
The ability to raise funds, as a factor likely to limit firms’ ability to increase the level of business over the next year, fell to a balance of 10 per cent, the lowest since August 2008 (5 per cent).