British businesses saw a sharp fall in activity last month and expect trading conditions to remain weak until at least March, according to a new survey from the Confederation of British Industry.
The CBI’s latest private sector growth indicator showed a weighted balance of -34 percent, suggesting that a clear majority of companies reported declining activity over the past three months. Companies surveyed said they expected weak conditions to continue into early spring, underscoring the continued vulnerability of the broader economy.
Economists said the downturn was partly due to cautious consumers holding back spending amid weeks of intense speculation ahead of the November Budget. Although this uncertainty is now easing, companies are reporting little sign of recovery.
Alpesh Paleja, deputy chief economist at the CBI, said the figures capped a disappointing year for private sector growth. “They mark a continuation of the headwinds that have plagued businesses over the last 12 months: tepid demand conditions, budget restraint on spending and strong cost pressures squeezing margins,” he said.
Paleja added that pre-Budget uncertainty had delayed investment decisions and major projects, limiting work pipelines. “The latest growth indicator suggests that alleviating this uncertainty has not significantly boosted activity,” he said.
The survey reflects other recent data pointing to a fragile economic environment. The Office for National Statistics reported earlier this month that the UK economy contracted by 0.1 percent in October, while retail sales also fell in November despite annual Black Friday sales.
The labor market indicators have also weakened. Hiring intentions across the services sector have fallen to their lowest level since July 2020, during the early stages of the Covid-19 pandemic. Analysts link the slowdown in recruitment to higher employment costs as a result of employers’ £25bn rise in national insurance contributions and a 6.7 per cent increase in the minimum wage, coupled with subdued consumer demand.
While inflation has eased, falling to 3.2 percent in November from 3.6 percent the previous month, companies plan to raise prices more quickly in the coming quarter to offset rising costs. The fall in inflation prompted the Bank of England to make its fourth interest rate cut of the year last week, providing some relief to households and businesses.
The prospects for the future remain subdued. The International Monetary Fund expects the UK economy to grow by 1.3 percent in 2026, a pace that remains weak compared to before the pandemic. Financial markets expect the Bank of England could cut interest rates one or two more times next year, a move that could boost consumer confidence, spending and growth – but for now businesses appear braced for a tough start to the year.
