Private sector still under pressure despite easing pessimism

Activity across the UK private sector is expected to decline again in the coming months, though business sentiment has improved modestly, according to the latest Growth Indicator from the Confederation of British Industry (CBI).

Firms reported that output fell in the three months to February, with a weighted balance of -19%, marking a slower pace of decline compared with -33% in the three months to January. All major sub-sectors experienced falling activity.

Looking ahead, companies expect activity to continue contracting in the three months to May, with a weighted balance of -13%. While still negative, this represents the least pessimistic reading since November 2024.

The anticipated downturn is expected to be led by a sharp fall in distribution sales (-36%) and a modest decline in manufacturing output (-12%). Services sector volumes are also projected to edge lower overall (-5%).

Within services, the outlook remains particularly bleak for consumer-facing businesses, which expect volumes to drop significantly (-38%). In contrast, business and professional services firms forecast a return to growth (+4%), marking the strongest expectations for that segment since the quarter to October 2024.

Charlotte Dendy, Economic Surveys & Data Manager at the CBI, said the improvement in expectations was notable but cautioned that the broader picture remains challenging.

“While private sector firms still expect activity to fall over the next three months, the improvement in the outlook is notable – with expectations at their least negative since November 2024,” Dendy said. “Nevertheless, expectations remain well below their long-run average, underscoring the fact that firms continue to face a challenging trading environment.”

Businesses continue to cite rising costs following recent Budgets, weak customer confidence and subdued demand as key pressures weighing on activity and investment plans.

Dendy added that the forthcoming Spring Forecast presents an opportunity for policymakers to reinforce the government’s growth agenda. “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,” she said.