Businesses like hairdressers, restaurants and travel agents have been hit hard as consumers tighten their belts because of higher household bills, according to a quarterly study by the Confederation of British Industry (CBI)/Grant Thornton.

Steve Edmonds, partner at financial advisers Grant Thornton, said:

"Consumers clearly have felt the need to rein in their spending on services in response to the higher petrol and utility prices that they have had to grapple with, as well as the higher cost of borrowing."

The study also found that the outlook by firms in this sector remained gloomy.