Private sector to decline but City to buck trend
Activity in the private sector is forecast to decline over the next three months but firms across business and professional services are set to enjoy their best quarter since 2024, the UK’s leading industry group has said.
The Confederation of British Industry (CBI) has found that most firms expect activity to fall in the next three months as its weighted balance reading was recorded at -13 per cent.
Industry officials said falling distribution sales was driving the slump in activity, along with a decline in manufacturing output.
Business volumes in the services sector were also also set to drop, particularly across consumer-facing businesses.
But the CBI also suggested that activity expectations across business and professional services improved in what was the best set of data since the quarter to October 2024.
The findings reflect the quiet sense of optimism across firms in the City, which is dominated by consultancies, advisories and other financial services businesses.
CBI researchers also said expectations across the private sector were the least negative since November 2024, the month after Chancellor Rachel Reeves hiked employment taxes through higher national insurance contributions by some £25bn.
Private sector on alert amid workers’ rights reforms consultations
Charlotte Dendy, the CBI’s economic surveys manager, said the improvement in business sentiment was “notable” despite remaining below long-run averages.
“Businesses continue to highlight the impact of recent Budgets on costs, alongside weak customer confidence and a broader lack of demand indicating that the mood remains fragile,” Dendy said.
“While the Spring Forecast may not carry the full weight of a Budget, it still provides an important moment for the Chancellor to double down on the government’s growth mission.
“With business costs continuing to weigh on private sector activity, growth and investment, broader solutions must be found on lowering business energy costs and on the practical implementation of the Employment Rights Act.”
The survey also showed that headcounts are set to be cut further in the three months to May, partly as a result of workers’ rights reforms implemented in the Employment Rights Act.
The CBI and other industry bodies secured a compromise with the government to scrap ‘day one’ rights for unfair dismissal but a host of other reforms, including greater powers for unions to organise strikes and expanded sick pay guarantees, could add to regulatory costs on firms.
A number of consultations on the bill will open in February, including on areas such as maternity leave and trade union membership.