Private sector activity set to shrink further, CBI says

UK private sector firms expect activity to continue falling into early 2026, according to the Confederation of British Industry’s (CBI) latest Growth Indicator, underlining what businesses describe as a prolonged and difficult period for growth.

The headline indicator shows companies once again forecasting a decline in activity over the next three months, with a weighted balance of -30%. This extends an unbroken run of negative expectations that began in late 2024.

The downturn is expected to be widespread across the economy. Services firms anticipate a further fall in business volumes (-29%), with weakness evident in both business and professional services (-24%) and consumer services (-46%). Expectations for distribution sales deteriorated sharply, falling to -47% — their weakest level since June 2020.

Manufacturers, while still predicting a decline in output (-17%), struck a slightly less pessimistic note than last month. Expectations improved modestly, returning broadly to their October levels.

The downbeat outlook follows another quarter of falling activity. Private sector output declined in the three months to December (-34%), little changed from the -35% recorded in the three months to November. All major sub-sectors reported weaker activity over the period.

“They mark a continuation of the headwinds that have plagued businesses over the past 12 months: tepid demand conditions, with households cautious around spending; and strong cost pressures squeezing margins,” he said.

He added that uncertainty ahead of November’s Budget had delayed investment decisions and major projects, limiting pipelines of work, and said that the easing of this uncertainty had yet to translate into stronger activity.

“Business cannot face another year of stasis and will be looking for the government to expedite delivery in 2026,” Paleja said. He urged ministers to build on the collaborative approach taken on the Employment Rights Bill and to work more closely with firms to address industrial energy costs and simplify the tax system.

The CBI’s monthly Services Sector Survey painted a similarly bleak picture. Business volumes in services fell sharply in the three months to December (-40%), matching the pace of decline seen in the previous quarter. Both business and professional services (-34%) and consumer services (-40%) recorded heavy falls.

Hiring intentions remain particularly weak. Overall services sector employment expectations fell to -34%, their lowest level since July 2020. Business and professional services firms expect headcounts to shrink (-24%), while consumer services companies anticipate a steep fall in employment (-51%).

At the same time, selling price inflation expectations accelerated, rising to +15% in December from +7% in November. The increase was driven by stronger pricing expectations in both business and professional services (+12%) and consumer services (+26%), reflecting ongoing cost pressures.

The CBI noted that all figures are expressed as weighted balances — the percentage of firms reporting an increase minus those reporting a decrease — highlighting the scale of pessimism still embedded across much of the private sector.