Businesses bet on growth as activity begins to pick up
Businesses are betting on growth in the coming months after activity across the private sector showed its “strongest outturn” in nearly two years, a closely watched survey has revealed.
According to the Confederation of British Industry (CBI’s) composite growth indicator today, which surveyed some 680 businesses, activity has stabilised across the private sector with growth of two per cent in the three months to May, compared to a contraction of 14 per cent between January and March.
The uptick was driven by a steadying of activity in the services sector, which fell one per cent in May, compared to a fall of 21 per cent in April, according to the CBI.
While firms have been tempering their expectations for growth this year, bosses are still pricing in expansion in the coming months in a sign that things are “heading in the right direction”, the CBI said.
“That expectations for growth remain positive should give further reassurance that things are heading in the right direction, alongside our survey data showing hiring intentions are holding up,” said Alpesh Paleja, lead economist at the CBI.
“But the recovery remains in its early stages, and firms in some sectors – particularly consumer-facing ones – continue to struggle.”
Firms across sectors are now gearing up for “modest but broad-based growth”, with activity expected to rise across distribution, manufacturing and services firms, the CBI found.
The business and professional services sectors were the main drivers of activity through May, with firms reporting a four per cent bump in activity. However, that was offset by a sharp decline in consumer facing firms which recorded a 23 per cent decline in activity, in a sign that cost pressures are still eating away at shoppers’ spending power.
Manufacturing output meanwhile jumped 15 per cent in the first increase since November 2022, up from three per cent in April.
The mixed performance across sectors comes on the back of stickier than expected inflation this year which has piled pressure on firms and eaten away at shoppers’ spending power.
According to the latest inflation print, price rises slowed to 2.3 per cent in April. However, that remained hotter than the 2.1 per cent economists had expected, with stubborn services inflation remaining a concern for the Bank of England.
Alongside its growth survey today, the CBI said the Tories and Labour now need to lay out a road map to rein in business costs and turbocharge investment to help drive business activity.
“With a date now set for a general election, we need all parties setting out clear policies to reduce business costs, attract investment and deliver a return to long-term sustainable growth,” Paleja added.
“After such a prolonged period of subdued activity, it’s encouraging to see things start to stabilise across the private sector.”
The latest inflation print showed prices rises slowed to 2.3 per cent in April. However, that was slightly hotter than the 2.1 per cent economists had expected, with sticky services inflation remaining a worry for rate-setters on Threadneedle Street.
In a statement today, the CBI said the Tories and Labour now need to lay out road maps to rein in business costs and turbocharge investment to help drive business activity.
“With a date now set for a general election, we need all parties setting out clear policies to reduce business costs, attract investment and deliver a return to long-term sustainable growth,” said Alpesh Paleja, lead economist at the CBI.
“After such a prolonged period of subdued activity, it’s encouraging to see things start to stabilise across the private sector.”
Both parties have vied to secure the ‘party of business’ crown over recent months, with Labour claiming their relationship with the Square Mile has changed, and the Tories attacking their letter of support from bosses as lacking major FTSE100 names.
It comes as pollsters at Savanta found the Labour Party had a record 17-point lead over the Conservatives among UK companies, according to their first business tracker poll since the general election was called.
The new polling, where 1,000 business decision-makers were asked which party would be ‘best for business in the UK’ showed Labour on 49 per cent, and the Conservatives on 32 per cent.
Marking the biggest gap Savanta has ever recorded, it was a 4-point rise on Labour’s lead in April’s tracker.
According to the CBI’s survey today, activity through May marked the “strongest outturn” since July 2022 and could signal the start of a period of growth for private firms.