The leisure sector has seen its biggest drop in business since 2001, according to the latest CBI Services Sector survey.

Conducted among 143 firms between 23 April and 7 May and covering the first three months of 2008, the survey found that hotels, bars and restaurants, cinemas and gyms “endured a worse quarter than they had feared,” with costs rising rapidly and profitability sinking at a record rate.

Demand for leisure services fell in the last quarter, along with spending in hotels, bars and restaurants, with the profitability of hospitality firms falling at a record rate, the report said.

Numbers employed by consumer service firms fell for the second quarter in a row, but firms plan for modest job increases for next quarter.

The British Hospitality Association (BHA) and the Fitness Industry Association (FIA) disputed the CBI’s findings, however.

“I think we’re in danger of talking ourselves into a worse situation than it actually is,” said a BHA spokesperson.”

“If money is tight, consumer spending will reduce and hotels and restaurants will be affected, so the pressure is on,” he said, but added that parts of the industry are continuing to do well, with TRI Hospitality’s latest figures for over 500 hotels showing occupancy and room rate up for the first four months of the year.

TRI Hospitality’s figures also show REVPAR up in London and reasonably steady in the UK provinces, the spokesperson said, though the growth in room rates there is falling behind consumer price inflation.

“So there are pressures, particularly with food and energy costs rising, but there’s certainly been no huge downturn. The challenge will be for hoteliers to cope with these cost increases without increasing prices. If that can be achieved through greater efficiencies, then the impact of the crunch will be much less,” he said, adding that country and resort hotels are feeling the strain more than city hotels due to rising fuel costs.

Restaurateurs will have to be careful about pricing, but eating out is an entrenched part of people’s lifestyles and has been on the rise for the past decade, the spokesman said.

FIA CEO Andree Deane cited the Leisure Database Company’s annual state of the industry report, which surveys all of the UK’s 5,800 fitness clubs and shows that there is still growth in the industry despite a slowdown from the past 10 years of year-on-year growth.

“Forty-one new clubs opened up last year. That doesn’t compare with previous years where several hundred opened, but it’s still growth,” Deane said, adding that club membership increased by almost 1 per cent to 7.2 million last year, and that the value of the sector increased to £3.7bn.

“The message is that despite the credit crunch, we are still growing and increasingly consumers see memberships as not a luxury item but an item of necessity,” she said.

Large multipurpose facilities catering to families are performing the best and many have been built over the last year, pointing to an increase in families exercising together, Deane added.

According to CBI, the only leisure industry sector to witness growth in the last three months is the travel sector, although travel services firms reported rapid cost increases and the fastest dip in profitability in five years due to limited ability to pass these costs on to consumers.

“Travel companies reported healthy demand for holidays in the past three months, with people more inclined to take a well-earned break as rising costs put greater demands on household spending,” said Ian McCafferty, the CBI’s chief economic adviser.