Market Data

Private sector braces for decline in activity, says CBI Growth Indicator

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Private sector activity in the UK is expected to fall sharply over the next three months, continuing a downward trend that has persisted since mid-2022, according to the Confederation of British Industry’s (CBI) latest Growth Indicator. The weighted balance of expectations stands at -22%, broadly unchanged from December, which marked the weakest outlook in over two years.

The bleak forecast reflects widespread pessimism across sectors, with particularly steep declines anticipated in consumer services and distribution sales. According to the survey, business volumes in the service sector are projected to drop by 20%, led by consumer services (-49%)—the lowest since September 2022—and business and professional services (-12%); a  significant 30% decline is expected in distribution sales; and, although manufacturers predict a 19% fall in output, this is a slight improvement from December’s grim forecast (-31%), which marked the weakest outlook since mid-2020.

These projections follow a 23% contraction in private sector activity in the three months to January, a continuation of the steady decline observed since August 2022.

Alpesh Paleja, Interim Deputy Chief Economist at the CBI, noted that the lack of recovery in early 2025 is compounding difficulties for businesses.

“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,” Paleja said.

He highlighted several challenges, including lacklustre consumer demand, ongoing adjustments to Budget measures, and increasing pressure on companies to cut staff and raise prices. “This risks an increasingly awkward trade-off for policymakers,” he added.

Paleja stressed the urgent need for measures to reignite growth, urging collaboration between the government and businesses. Suggested actions include reforming the business rates system; increasing flexibility in the Apprenticeship Levy; and expanding employer occupational health provisions to support workforce retention.

“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,” Paleja emphasised.

The CBI’s monthly survey of the services sector revealed worsening conditions across the board:

  • Declining volumes: Business volumes fell by 24% in the three months to January, with consumer services seeing their fastest decline in over two years.
  • Weak hiring intentions: Business and professional services expect a 20% reduction in headcount, while consumer services anticipate a sharper 44% fall.
  • Inflation pressures: Price growth expectations surged to 34% in January, up from 20% in December and well above the long-term average of 7%.