UK private economy wilts amid high inflation and interest rates, CBI survey shows
Britain’s private sector economy is being trapped by high inflation and elevated interest rates and companies fear growth will continue to contract, a new survey out today shows.
Research by the lobby group the Confederation of British Industry (CBI) has found that activity across the private sector – which generates most output in the UK – contracted six per cent in the three months to July, worse than the stagnation clocked in the previous month.
And output is likely to shrink in the coming months, albeit at a slower pace, with firms anticipating activity to drop three per cent in the next quarter.
Consumer services were the biggest drag on the private sector as a whole, the CBI said. Business volumes fell 34 per cent in the three months to July, leading companies to lay off staff.
In the next three months, consumer facing companies fear activity will contract around a third.
Retailers are among the sectors that have been hardest hit by a reduction in demand amid the cost of living crunch.
Family finances have been gripped by inflation running at multi decade highs for months and the Bank of England trying to tame prices with aggressive rate rises.
Separate data from the CBI out last week showed retail sales collapsed at the fastest pace since April 2022. ONS numbers however show retail sales volumes jumped 0.7 per cent annually in June.
Financial and professional services are a bright spot in the private sector. The CBI’s survey said business volumes fell just two per cent in the three months to July. Staff numbers are forecast to rise.
Alpesh Paleja, lead economist at the CBI, said: “While UK growth has been resilient so far, our latest surveys underscore just how fragile its foundations are.”
“Demand conditions remain uncertain, particularly in consumer services, amid headwinds from labour shortages and rising interest rates,” he added.
Consumer focused firms are preparing to back more price increases in the coming months to offset rising wage and raw material costs, the CBI said.
That is likely to concern economists at the Bank of England, who this Thursday are expected to back a 14th straight interest rate rise.
A reduction in employment volumes in the private sector though suggests candidate supply will beef up in the next quarter, potentially weakening wage growth and raising unemployment, factors that should put more downward pressure on inflation.