UK economy heading towards ‘worst of all worlds’, CBI warns

The Confederation of British Industry (CBI) has warned that the UK economy is heading for “the worst of all worlds”, with business activity expected to decline at the start of the new year.

Private sector businesses expect a decline in activity in the three months to March (weighted balance -24%), according to the latest CBI growth indicator. Expectations are now at their lowest level in more than two years.

This pessimism was shared across all sub-sectors. Business volumes in the services sector are expected to decline (-18%), driven by expected declines in business and professional services (-13%) and consumer services (-37%).

Distribution sales are also expected to fall sharply (-35%), and manufacturers also anticipate a drop in production (-31%), with expectations at their lowest since May 2020.

This disappointing outlook comes as private sector activity fell again in the quarter ended December, at a faster pace than in the quarter ended November (-21% compared to -13% in November). Activity has been stable or decreasing since August 2022.

In addition, hiring intentions in the services sector are weak. Business and professional services expect a decline in headcount over the next three months (-17%), with expectations at their lowest since September 2020. Consumer services companies also expect a sharp decline workforce (-49%).

However, expectations for price growth accelerated from November (+20%) and are above the long-term average (+7%). Inflation Expectations for business and professional services also increased in December (+13%, compared to +7% in November) and accelerated more markedly for consumer services companies, reaching their highest level in a year. year (+42%, against +21%). .

Alpesh PalejaCBI acting deputy chief economist, said: “There is little festive cheer in our latest surveys, which suggest the economy is heading for the worst of all worlds – with businesses expecting to shrink to the both their production and their hiring, and expectations for price growth are strengthening. . Businesses continue to cite the impact of measures announced in the Budget – particularly the increase in employer NICs – which have exacerbated an already sluggish demand environment.

“As 2025 approaches, businesses are looking to the government to build confidence and give them a reason to invest, from long-awaited measures to reform the apprenticeship levy to support for workforce health through increased occupational health incentives or reform. professional rates.

He added: “In the longer term, businesses will look to industrial strategy to provide the stability and certainty that can unlock innovation and investment – ​​and deliver that much-needed growth to the economy that can bring prosperity for businesses and households. »

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