Business confidence improves but private sector expects activity to decline

Businesses have become marginally less pessimistic about the UK economic outlook, but private sector firms continue to expect activity to contract over the coming months as weak demand, persistent cost pressures and geopolitical uncertainty continue to weigh on confidence.

The latest CBI Growth Indicator found that private sector activity is expected to fall in the three months to October, with a weighted balance of -18%. While still firmly negative, this represents the least pessimistic outlook since March, shortly after the outbreak of conflict involving Iran, suggesting business confidence is beginning to stabilise after several difficult months.

However, the survey also extends a run of negative growth expectations that has persisted since late 2024, highlighting the fragile state of the UK economy despite some signs of improvement.

Manufacturing is expected to experience the sharpest decline in activity over the next three months, with output forecast to fall by a balance of -30%. Business and professional services and consumer services are both expected to record more modest contractions (both -14%), while distribution sales are also forecast to decline (-20%), although sentiment in the sector has improved to its strongest level since August 2025.

The latest survey follows another difficult quarter for businesses, with private sector activity falling at a weighted balance of -21% in the three months to July. Although still negative, this marked the slowest rate of decline since February. All major sectors reported lower activity during the period.

“Businesses are slightly less pessimistic about the outlook than they were a few months ago, but they are far from breathing a sigh of relief. Firms continue to report subdued demand, hesitant customers and weak confidence, while persistent cost pressures are keeping margins squeezed. Renewed tensions in the Middle East have added another headwind that had previously begun to ease. The result is an economy that appears to be finding a floor, but not yet a firm footing.

“The persistently negative data in our surveys highlights the economic challenge facing the new Prime Minister and his team, as they begin to set out their agenda. Recent announcements around support for households and the high street are welcome but if government wants growth that lasts, it needs to make the UK a better place to invest, hire and scale. That means cutting the cost of doing business – from energy bills and labour costs to tax and planning – speeding up delivery, and creating the conditions for private capital to crowd in.

“Fostering conditions that inspire businesses to create jobs and invest is imperative to lowering the cost of living for households, allowing all to benefit from consistent economic gains.”

The CBI’s latest monthly Services Sector Survey also painted a subdued picture. Business volumes across the services sector fell at a balance of -24% in the three months to July, although this represented a slower decline than reported in June.

Within the sector, business and professional services recorded a balance of -21%, while consumer services experienced a steeper contraction of -33%.

Employment intentions also remained weak, with services firms expecting to reduce headcount over the next three months. Hiring intentions improved slightly to -14%, marking the least pessimistic reading since October 2024. Business and professional services firms anticipate only modest reductions in staffing levels (-10%), while consumer services businesses expect a more significant decline (-22%).

Despite subdued demand, inflationary pressures remain evident. Selling price expectations across the services sector stayed elevated at +14% in July. Business and professional services firms expect prices to rise at a balance of +11%, while consumer services businesses continue to anticipate stronger price increases (+24%), although these expectations have eased from previous months.