Private sector firms expect another significant fall in activity over the next three months (weighted balance of -22%), according to the Confederation of British Industry’s (CBI) latest Growth Indicator. Expectations are broadly unchanged from December, which were the weakest in over two years.

This pessimism was widespread across the private sector. Business volumes in the services sector are anticipated to decline (-20%), driven by a predicted fall in business and professional services (-12%) and the weakest expectations for consumer services (-49%) since September 2022. Distribution sales are expected to fall steeply (-30%), and manufacturers also anticipate a decline in output (-19%). However, expectations among manufacturing firms are less weak compared to December, when firms’ predictions for falling output (-31%) were the lowest since mid-2020.

The disappointing outlook comes as private sector activity fell again in the three months to January (-23%), at a broadly similar pace to the three months to December (-21%). Activity has been flat or falling since August 2022.

Alpesh Paleja, Interim Deputy Chief Economist, CBI said:

“After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity. Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers."

"Anecdotes suggest that companies are being hit by lacklustre demand and caution among consumers, while also continuing to adjust to measures announced in the Budget."

“There is an urgent need to get momentum back into the economy. The government can help shift the UK’s economic narrative with more determined focus on measures that could drive growth."

“Reforming the business rates system, implementing flexibility in the Apprenticeship Levy and supporting people to stay in work through expanding employer occupational health provision can help."

“With forecasts of underwhelming growth this year and less headroom for business investment, the way forward lies in the government and firms working together to deliver on their growth plan to restore confidence and get the economy firing on all cylinders.”

Key findings from our monthly Services Sector Survey showed:

• Business volumes in the services sector fell in the three months to January (-24%), with the pace of decline accelerating from December. Volumes have generally been flat or falling since mid-2022.

  
  

• Within this, business & professional services volumes fell (-16%), at a similar pace to the three months to December. The decline in consumer services volumes accelerated, with activity falling at its fastest pace in over two years.

  
  

• Hiring intentions within the services sector are weak. Business & professional services expect headcount to fall over the next three months (-20%). Consumer services companies also once again anticipate numbers employed to fall sharply (-44%).

  
  

• Price growth expectations (+34%) have accelerated from December (+20%) and stand well above the long-run average (+7%). Inflation expectations for business & professional services jumped in January (+33%, from +13% in December) and were broadly unchanged – but remain elevated - for consumer services firms (+40%, from +42%).