Ryan FowlerThe UK private sector faces another significant contraction in activity over the next three months, according to the Confederation of British Industry’s (CBI) latest Growth Indicator. The weighted balance of expectations stands at -22%, broadly unchanged from December and marking one of the weakest outlooks in over two years.
Private sector activity fell by 23% in the three months to January, following a similar decline in December (-21%), with output stagnating or contracting since mid-2022. Confidence remains low across industries, particularly in consumer services (-49%), the weakest forecast since September 2022, and distribution sales (-30%). Business and professional services predict a smaller decline (-12%), while manufacturing firms anticipate a 19% fall in output, an improvement from December’s -31%.
Alpesh Paleja, interim deputy chief economist at the CBI, said: “After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity. Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers. Anecdotes suggest that companies are being hit by lacklustre demand and caution among consumers, while also continuing to adjust to measures announced in the Budget.”
The services sector reported declining volumes in January (-24%), a sharper drop compared to December, with business and professional services volumes down 16%. Consumer services activity fell at its fastest pace in over two years. Employment prospects are similarly bleak, with headcount reductions expected in business and professional services (-20%) and consumer services (-44%). Price growth expectations also rose sharply in January, standing at +34% compared to a long-run average of +7%.
Paleja urged the government to act decisively to spur growth, recommending reforms to business rates, greater flexibility in the Apprenticeship Levy, and expanded occupational health provision to retain workers. He added: “With forecasts of underwhelming growth this year and less headroom for business investment, the way forward lies in the government and firms working together to deliver on their growth plan to restore confidence and get the economy firing on all cylinders.”
