Private Sector Growth Expectations Remain Weak

Private sector companies expect activity to fall at a firm pace in the three months to September (weighted balance of -18%), according to the CBI’s latest Growth Indicator. Expectations are less negative relative to May, but extend a period of pessimism that began late last year.

Business volumes in the services sector are anticipated to decline (-14%), driven by expected falls in both business & professional services (-10%) and consumer services (-31%) volumes. Distribution sales are expected to fall in the three months to September (-40%, the weakest expectations since September 2022), while manufacturers expect output to fall only slightly (-5%).

The negative outlook comes as private sector activity fell again in the three months to June, at the same pace as in May (-26%). The decline in activity was broad-based across all sectors.

Alpesh Paleja, CBI Deputy Chief Economist, said: “While negative expectations for activity have eased a little, our surveys still point to challenging conditions for businesses. Firms cite a very mixed picture on activity: while there are pockets of strength in the economy, it’s clear that sizeable headwinds to growth remain."

“Companies are still grappling with higher employment costs, cautious spending behaviour on the part of households, and increasing global uncertainty. The recent volatility in global oil prices is also one to keep an eye on, given its scope to exacerbate costs and inflationary pressure."

“The Industrial Strategy does address some of the more immediate headwinds to growth: notably, delivering competitive energy prices and easing access to talent are steps in the right direction. But firms – particularly those outside of the 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.”

Key findings from our monthly Services Sector Survey showed:

• Business volumes in the services sector declined in the three months to June (-24%), at a broadly similar pace to the quarter to May. The latest data marked eight consecutive rolling quarters of decline.
  

• Both business & professional services (-20%) and consumer services (-43%) volumes fell through the quarter.
  

• Hiring intentions within the services sector remain weak. Business & professional services expect headcount to fall modestly over the next three months (-10%), while consumer services companies continue to expect a sharp fall in numbers employed (-36%).
  

• Selling price expectations (+24%) for the quarter to September are elevated and stand well above the historic average (+7%). Inflation expectations in business & professional services were broadly unchanged from May (+23%) and have accelerated somewhat for consumer services firms (+29%). Both readings remain above their long-run averages.