Rachel Reeves’ Autumn Budget still causing negativity – CBI
A streak of negative business sentiment has now lasted 10 months, a leading industry body has suggested, in further evidence that employers have struggled to turn a page on Chancellor Rachel Reeves’ £40bn tax raid at last year’s Autumn Budget.
Prime Minister Sir Keir Starmer has repeatedly told MPs that business confidence was edging higher, pointing to an optimistic survey conducted by Lloyds Bank every month.
But the Confederation of Business Industry (CBI)’s own monthly survey of some 900 firms suggests owners have planned for a drop in business activity in each of the last 10 months.
The last positive reading for firms’ expectations on output volumes for the coming three months was in August.
The month after showed a neutral reading suggesting just as many firms believed output would decrease as those who said it would increase.
Researchers said that all parts of the private sector expected activity to decline, with respondents claiming that tax increases, delays in public procurement and tariff threats had left them uneasy about their future prospects.
Firms still battling headwinds after Rachel Reeves’ first Autumn Budget
The CBI’s latest survey has also suggested that private sector output had dropped at a faster pace over the last three months compared to the previous two surveys.
“The persistently negative outlook underlines the fragility of demand conditions,” said Alpesh Paleja, CBI deputy chief economist.
“Against this backdrop, businesses continue to cite headwinds from adjusting to higher employment costs, energy prices and continued uncertainty from a volatile global environment.
“With few signs of recovery on the horizon, firms are focused on managing costs and streamlining processes in what looks set to be a subdued second half of the year.”
The CBI’s survey also suggested that headcounts would drop further in the three months to October while an increase in selling prices for business services will be slightly lower than in previous months.
A fall in services inflation is likely to put Bank of England officials on alert, given its importance as a price growth indicator.
It is expected to lower interest rates by 25 basis points at its next meeting to four per cent but policymakers are unlikely to unanimously agree on a cut.
Further delays to interest rate cuts could be a headache for Rachel Reeves as she faces a challenge in keeping her headroom intact at this year’s Autumn Budget, with her growth mission under threat in part due to a high tax burden.
A survey by the trading platform IG put defence at the top of a list of growth sectors ahead of AI, signalling areas of the economy which Reeves may want to target to drive income.
IG analysts said that most of the 1,800 investors surveyed believed the threat of conflicts and government spending commitments made defence a “more resilient growth story” than tech, which could stand to benefit BAE Systems, Rolls-Royce and Babcock.