Private sector braced for sharp decline, CBI warns
Private sector businesses across the country are braced for a sharp decline in activity in the next three months, the UK’s largest industry body has warned, as Chancellor Reeves struggles to reverse low business confidence trends.
Reeves may have hoped the industrial strategy, plans on infrastructure investment and pension reforms aimed at boosting UK assets would have improved the downbeat mood of business owners.
But a new survey by the Confederation of British Industry (CBI) has revealed private sector companies are worried activity will decline in the three months to September after a sharp decrease in the three months to June, which saw a drop of 26 per cent in output.
CBI researchers said business volumes in the services sector, which represents around 81 per cent of gross value added (GVA) in the UK, would fall by 24 per cent.
A drop of 31 per cent in activity across consumer services is the main force behind the figure while the CBI also revealed distribution sales are expected to nearly half in the quarter, the weakest expectations recorded since September 2022 when inflation was nearing a peak of 11.1 per cent.
CBI deputy chief economist Alpesh Paleja said the latest survey showed there were “sizeable headwinds” to growth from Reeves’ decision to hike employment taxes through lowering the salary threshold for employers’ national insurance contributions (NICs) and due to “cautious spending behaviour”.
“The recent volatility in global oil prices is also one to keep an eye on, given its scope to exacerbate costs and inflationary pressure,” Paleja warned.
“Firms – particularly those outside of the industrial strategy’s purview – will be looking for further certainty in the Autumn Budget to boost the UK’s overall competitive edge. This includes further clarity on when business will benefit from greater growth and skills levy flexibility, and business rates reform.”
Reeves has been warned by several economists that raising taxes in the autumn would further damage business confidence, which is closely monitored by Bank of England officials ahead of interest rate decisions.
Private sector looks overseas
Given U-turns on government savings in the welfare budget and the higher cost of borrowing, many believe Reeves is poised to raise taxes by as much as £20bn in the autumn.
But UK firms are now looking overseas to find buyers for products despite international trade tensions
Nearly half of 500 mid-sized businesses surveyed by the consultancy BDO said they were more optimistic about finding new customers overseas due to trade deals in what may represent a more positive prospect for the government in delivering growth.
A fifth of businesses in the private sector said they were interested in selling products to customers in the Middle East and Africa, with a large portion of those respondents claiming they were ready to diversify beyond closer markets such as the European Union.
North America remained the most attractive export region despite the threat of President Trump’s tariffs though around 57 per cent of firms said they saw trade frictions as a top challenge.
BDO partner Richard Austin said the UK’s mid-sized businesses have welcomed a trade strategy which focussed on boosting services exports.
