The UK’s private sector is bracing for further contraction in the months ahead, with business sentiment and activity expected to deteriorate through the second quarter, according to the latest Growth Indicator from the Confederation of British Industry (CBI).
Firms across the private sector anticipate a continued fall in activity over the next three months, with a weighted balance of -18%. This outlook is broadly unchanged from last month, reflecting sustained pessimism across industries amid mounting economic pressures.
The services sector is set to bear the brunt of the slowdown, with business volumes forecast to decline by -20%. Both business and professional services (-15%) and consumer services (-34%) are expecting notable drops, underscoring weakening demand across client-facing and support-oriented firms.
Distribution, a sector that has seen particular volatility over recent quarters, is also projected to contract sharply (-27%). Meanwhile, manufacturing output is predicted to remain flat (-2%), a downbeat reversal from the modest optimism reported last month (+8%).
The bleak forecast follows another quarter of decline. Private sector activity fell by -27% in the three months to March—the same pace recorded in the quarter to February—with all major sectors reporting a downturn in business volumes.
“There doesn’t appear to be much let up in the near-term economic outlook, with businesses once again expecting activity to decline,” said Alpesh Paleja, Deputy Chief Economist at the CBI.
“While the picture is mixed across firms, they continue to tell us that the impact of higher employer NICs, the upcoming rise in the National Living Wage, and concern over the Employment Rights Bill are weighing on activity and sentiment.”
Rising operational costs and persistent inflationary pressures remain a concern, particularly in the services sector. Firms continue to report strong price growth expectations (+27%) for the quarter to June—well above the long-run average of +7%. In business and professional services, inflation expectations have increased to +24%, while in consumer services, expectations remain elevated at +41%, though down slightly from February.
Paleja also flagged the potential impact of global trade tensions. “There are growing reports of uncertainty around US tariffs impacting new demand and leading to some projects being paused or delayed. The combination of all of these issues is also weighing on consumer sentiment, serving to make households even more value conscious.”
Hiring prospects are also faltering. In the services sector, business and professional services expect headcount to decline by -14%, while consumer services forecast a sharper drop of -36% over the next three months.
Despite the challenging landscape, there are calls for government action to bolster long-term growth. “The Chancellor has kept her promise to business not to raise the burden further,” said Paleja. “The government must now use the Spending Review to secure a more positive outlook for long-term growth. Measures around an ambitious goal for R&D spending, making it easier to invest in skills, and reducing the regulatory burden would remove some of the hurdles that businesses face in operating at their full potential.”
