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 Rachel Reeves struggles to reverse low business confidence trends.
Reeves may have hoped that the industrial strategy, plans on infrastructure investment and pension reforms aimed at boosting UK assets would have improved the downbeat mood of business owners.
However, a new survey by the Confederation of British Industry (CBI) has revealed that private sector companies are concerned activity will decline in the three months to September, following a sharp decrease in the three months to June.
CBI researchers said more companies were wroried business volumes in the services sector, which accounts for around 81 per cent of gross value added (GVA) in the UK, would decline.
Weak activity across consumer services is the main force behind the data, while the CBI also revealed the vast majority of businesses expected distribution sales to decline, 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, which may represent a more positive prospect for the government in delivering growth.
A fifth of businesses in the private sector expressed interest 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 their 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 focused on boosting services exports.