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

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

Private sector firms expect activity to fall in the three months to March (weighted balance of -24%), according to the CBI’s latest Growth Indicator. Expectations are now at their weakest in over two years.

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

Distribution sales are also expected to fall steeply (-35%), and manufacturers also anticipate output to fall (-31%), with expectations at their weakest since May 2020.

The disappointing outlook comes as private sector activity fell again in the three months to December, at a faster pace than in the three months to November (-21% from -13% in November). Activity has been flat or falling since August 2022.

Additionally, hiring intentions within the services sector are weak. Business and professional services expect headcount to fall over the next three months (-17%), with expectations at their weakest since September 2020. Consumer services companies also anticipate numbers employed to fall sharply (-49%).

However, price growth expectations have accelerated from November (+20%) and stand above the long-run average (+7%). Inflation expectations for business and professional services have also ticked up in December (+13%, from +7% in November), and accelerated more prominently for consumer services firms, to their strongest in a year (+42%, from +21%).

Alpesh Paleja, CBI interim deputy chief economist, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer. Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.

“As we head into 2025, firms are looking to the government to boost confidence and to give them a reason to invest, whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates.”

He added: “In the longer term, businesses will be looking to the industrial strategy to provide the stability and certainty which can unlock innovation and investment – and provide that much needed growth for the economy which can deliver prosperity for firms and households alike.”