Private sector downturn set to persist into 2026

The UK’s private sector downturn shows no signs of easing, with firms expecting activity to continue falling into early 2026, according to the Confederation of British Industry’s (CBI) latest Growth Indicator.

The October survey reveals that private sector activity is expected to decline over the next three months, with a weighted balance of -20%. This marks the continuation of a negative trend that began in late 2024, signalling prolonged weakness across all major sectors of the economy.

The downturn is expected to be widespread. The services sector anticipates a 15% fall in business volumes, with both business & professional services (-12%) and consumer services (-28%) showing weak expectations.

The distribution sector faces the sharpest contraction, with sales forecast to drop by 34%, while manufacturing output is also expected to shrink by 19%.

The latest figures come as private sector activity fell by 32% in the three months to October, matching the pace of decline seen in the previous quarter. All sub-sectors reported falling activity, underscoring the breadth of the slowdown.

“Firms are facing a difficult winter, with private sector momentum weak and confidence fragile. Uncertainty around the upcoming Budget is weighing heavily on sentiment, with many firms keeping key decisions on hold until more clarity is forthcoming. Cost pressures from a variety of sources remain strong, with last year’s tax rises adding to the drag.”

Paleja added that businesses are looking to the Chancellor for decisive action in the forthcoming Budget:

“Tough decisions to deliver policy stability and address fiscal pressures will be needed. Our surveys clearly show that the private sector cannot bear the brunt of these decisions once again. The business tax burden is already at a 25-year high and – rather than tinkering around the edges – the Chancellor must strategically address the tax system’s complexities that are undermining growth and deliver a Budget that helps businesses invest, hire, and scale.”

The CBI’s monthly Services Sector Survey paints a similarly bleak picture:

• Business volumes in the sector fell by 35% in the three months to October, matching September’s rate of decline.
• Both business & professional services (-34%) and consumer services (-40%) saw heavy drops in activity.
• Hiring intentions remain subdued, with business & professional services firms expecting headcount to fall by 11%, and consumer services firms forecasting a steeper 33% decline.
• Selling price expectations have eased to their long-run average (+7%, down from +14% in September), suggesting inflationary pressures are stabilising.

Despite easing price expectations, the CBI warned that persistent cost pressures and fragile confidence are likely to constrain growth well into next year.

With sentiment subdued and investment decisions being delayed, the CBI’s latest findings suggest the UK’s private sector could struggle to regain momentum before mid-2026. Unless fiscal and policy certainty improve, firms may continue to hold back on hiring, investment, and expansion plans.

A balance figure in the survey represents the weighted percentage of firms reporting an increase minus those reporting a decrease.