Private sector braces for further contraction amid mounting pressures

UK private sector firms continue to anticipate a downturn in activity over the coming months, according to the latest CBI Growth Indicator for April 2025. Businesses expect output to decline in the three months to July, with a weighted balance of -21%, echoing last month’s subdued outlook.

The downturn is driven largely by weakening confidence in the services sector, which is forecast to see a sharp drop in business volumes (-26%), marking the weakest expectations since November 2022. Within this sector, both business and professional services (-22%) and consumer services (-41%) anticipate declines. Consumer-facing sectors are particularly under pressure as households remain squeezed by elevated costs.

The distribution sector also expects a significant fall in sales (-23%), while manufacturing output is projected to contract more modestly (-5%), suggesting some relative resilience in industrial activity.

The outlook follows a continued decline in private sector activity during the three months to April, though the pace of contraction eased slightly compared to March (-19% vs. March’s deeper slump).

“Uncertainty has ramped up over the last few weeks, following the back-and-forth on tariffs levied by the US and, subsequently, big movements in financial markets.”

Paleja also cited global volatility, recent increases to National Insurance Contributions and the National Living Wage, and persistent concerns over the Employment Rights Bill as key factors dampening business sentiment.

The services sector saw business volumes drop by -24% in the three months to April, marking six consecutive rolling quarters of decline. Both key sub-sectors –business & professional services (-20%) and consumer services (-41%) – reported negative growth.

Hiring prospects remain bleak: headcounts are expected to fall by -17% in business & professional services and by a staggering -42% in consumer services firms.

Despite falling activity, inflationary pressures remain strong. Selling price expectations for the three months to July rose to +27%, significantly above the long-run average of +7%. Consumer services inflation expectations stood at +40%, while business services registered +23% – both unchanged from March but still well above historical norms.

With businesses facing heightened uncertainty and sluggish demand, the CBI urged the UK government to act decisively to support growth.

“It’s more important than ever for the government to focus on the growth levers that it can control,” Paleja added. “Businesses need to see the government using the forthcoming industrial strategy and spending review to prioritise key measures to unlock growth. Whether that’s reforming the apprenticeship levy to give employers greater flexibility or setting a world leading goal for R&D investment – these could provide a much-needed kickstart to the economy in these difficult times.”