Firms suffer a sharp decline in activity over past month, CBI finds

Businesses suffered from a sharp decline in activity over the past month and expect the downturn to carry on until March, a survey released on Monday showed.

The CBI’s latest growth indicator for the private sector recorded a weighted balance of -34 per cent, signalling that most businesses had told the lobby group activity had declined over the past three months. Companies said they thought the sluggish period would extend into the early spring.

Experts said that the poor trading period was partly down to consumer caution because of intense speculation about what taxes could rise in the budget last month.

Alpesh Paleja, deputy chief economist at the CBI, said: “Our latest surveys round off a disappointing year for private sector growth. They mark a continuation of the headwinds that have plagued businesses over the past 12 months: tepid demand conditions, with households cautious around spending; and strong cost pressures squeezing margins.

“Uncertainty ahead of November’s budget also put the brakes on key spending decisions and big projects, choking up pipelines of work. The latest growth indicator suggests that the alleviation of this uncertainty hasn’t materially boosted activity.”

The CBI figures chimed with separate data that illustrated the fragile state of the economy. The Office for National Statistics said this month that the economy had contracted by 0.1 per cent in October and that retail sales volumes had declined by the same degree in November despite the annual Black Friday sales event happening in the month.

Hiring intentions across the services sector slumped to their lowest level since the early days of the Covid-19 pandemic in July 2020. This was likely to have been driven by the £25 billion rise in employers’ national insurance contributions and the 6.7 per cent increase in the minimum wage, alongside tepid consumer spending reducing the need to expand staffing levels.

Services companies said that they intended to raise prices at a quicker pace over the coming quarter. The latest figures from the ONS showed that headline inflation across the UK economy fell to 3.2 per cent in November from 3.6 per cent in the previous month, spurring the Bank of England to deliver the fourth interest rate cut this year last week.

According to forecasts from the International Monetary Fund, the UK economy is set to expand by 1.3 per cent in 2026, which would be weak compared with before the pandemic.

Financial markets believe that the Bank of England could lower rates once or twice next year, which could deliver a boost to consumer confidence, spending and GDP growth.