Downturn in private sector activity set to worsen, CBI warns

UK private sector firms expect activity to fall further over the coming months, according to the latest Growth Indicator from the Confederation of British Industry (CBI), underscoring a fragile outlook for the economy as cost pressures and geopolitical uncertainty weigh on sentiment.

The latest survey shows that businesses anticipate a decline in activity over the next three months, with a weighted balance of -25%. This marks the weakest expectations since December 2025 and extends a run of negative growth forecasts that began in late 2024.

The downbeat outlook reflects a broad-based slowdown. Private sector activity fell in the three months to April (-24%), with all major sub-sectors reporting declines.

The services sector – a key driver of the UK economy – is expected to see volumes fall further (-22%). Within this, consumer services are forecast to decline (-15%), while business and professional services face a steeper contraction (-24%), with sentiment deteriorating further in recent weeks.

Retail and wholesale businesses are bracing for a particularly sharp downturn, with distribution sales expected to drop by -41%. Manufacturers also anticipate weaker conditions, though the projected decline in output (-20%) is more modest, albeit the weakest outlook since November 2025.

“Business expectations for activity have weakened further, as companies continue to grapple with uneven trading conditions, strong cost pressures and renewed uncertainty,” he said.

He pointed to the ongoing conflict in the Middle East as an additional strain: “These challenges have been exacerbated by the conflict in the Middle East, which is increasingly hitting a broad swathe of UK businesses. Our surveys suggest that the additional pressure on costs and supply chains is feeding through to pricing intentions – but not nearly enough to offset the burden facing firms.

The survey also highlights continued weakness in the labour market. Hiring intentions across the services sector remain negative (-21%), extending a trend seen since late 2024.

Firms in business and professional services expect modest headcount reductions (-13%) in the coming months, while consumer-facing businesses anticipate sharper cuts (-34%), reflecting weaker demand and tighter margins.

Despite falling activity, pricing pressures remain elevated. Selling price expectations in the services sector rose to +30%, the highest level since January 2025.

Consumer services firms, in particular, expect strong price growth (+58%), with inflation expectations in the sector now at their highest since early 2023 – highlighting the persistence of cost-driven inflation even as demand softens.

Paleja said that while recent government measures to ease energy costs have been welcomed, more action is needed to support businesses and prevent a further deterioration in confidence.

He called for progress on key policy areas, including the Employment Rights Act, reform of the business rates system, and additional steps to reduce energy-related costs.

“Mitigating a further weakening of business sentiment requires the government to work with business… Doing so will help businesses reinvest, scale and drive economic growth,” he said.