Firms across the private sector expect activity to fall in the next three months (weighted balance of -18%), extending a run of negative sentiment that began in late 2024, according to the CBI’s latest Growth Indicator.

The downturn is expected to be broad-based, with business volumes in the services sector set to decline (-19%), driven by weaker expectations in business & professional services (-16%) and a continually negative outlook in consumer services (-28%). A sizeable fall is also anticipated in distribution sales (-28%), while manufacturing output is expected to dip modestly (-6%).

The weak outlook follows a sharp fall in activity in the three months to July (-29%). Most sub-sectors reported falling activity, while manufacturing output was stagnant.

Alpesh Paleja, CBI Deputy Chief Economist, said: “Firms continue to face testing conditions, with expectations pointing to another quarter of falling activity across the economy. While not worsening, the persistently negative outlook underlines the fragility of demand conditions."

“Against this backdrop, businesses continue to cite headwinds from adjusting to higher employment costs, energy prices and continued uncertainty from a volatile global environment. With few signs of recovery on the horizon, firms are focused on managing costs and streamlining processes in what looks set to be a subdued second half of the year."

“Building positive business sentiment will require the government to translate its long-term strategic thinking into short-term delivery progress."

"The government must work collaboratively with business in the lead up to this year’s Autumn Budget: acknowledging the significant burdens that firms are facing and mitigating the damaging impact on sentiment from continued fiscal uncertainty."

“Detailing how the government will deliver its action plan to tackle regulatory barriers to growth; positioning businesses to invest in the people they need through a flexible Growth and Skills Levy; and finding an appropriate landing zone for the Employment Rights Bill are positive next steps the government should be prioritising to build confidence in its growth mission.”

Key findings from our monthly Services Sector Survey showed:

• Business volumes in the services sector fell in the three months to July (-35%), at a faster pace than in the quarter to June. The latest data marked nine consecutive rolling quarters of decline.

• Both business & professional services (-37%) and consumer services (-30%) volumes fell through the quarter.

• But trends between the two sectors diverged: business & professional services saw the fastest fall in activity since October 2020, while consumer services reported the slowest decline in nine months.

• Hiring intentions within the services sector remain weak. Business & professional services expect headcount to fall over the next three months (-19%), while consumer services companies expect a comparatively sharper fall in numbers employed (-37%).

• Selling price expectations in the services sector have eased close to long-run averages (+11%; long-run average +7%). Inflation expectations have retreated in both business & professional services (+7%) and consumer services (+24%).