CBI Survey Reveals Diverging Economic Outlook for Private Sector and City Services
The Confederation of British Industry (CBI), the UK's foremost industry body, has released a survey indicating that private sector activity is expected to contract over the coming quarter. However, in a notable contrast, firms operating within business and professional services in the City of London are poised to enjoy their strongest period since 2024.
Overall Private Sector Contraction
The CBI's weighted balance reading registered at -13 per cent, reflecting that the majority of firms anticipate a fall in activity over the next three months. Industry figures attribute this downturn to declining distribution sales and a drop in manufacturing output. Service sector business volumes are also forecast to decrease, with consumer-facing businesses being particularly exposed to the slowdown.
City Services Show Resilience
Despite the broader decline, the CBI suggests that activity expectations within business and professional services have improved, representing the most encouraging set of figures since the quarter to October 2024. This upturn mirrors a quiet sense of confidence amongst City firms, where consultancies, advisory businesses, and other financial services organisations predominate.
Business Confidence and Economic Context
CBI researchers noted that private sector expectations are the least pessimistic since November 2024. This period followed Chancellor Rachel Reeves' decision to raise employment taxes via increased national insurance contributions, totalling approximately £25 billion. Charlotte Dendy, the CBI's economic surveys manager, described the upturn in business confidence as "notable" but cautioned that it continues to sit below long-term averages.
Dendy commented: "Businesses continue to highlight the impact of recent Budgets on costs, alongside weak customer confidence and a broader lack of demand, indicating that the mood remains fragile. While the Spring Forecast may not carry the full weight of a Budget, it still provides an important moment for the Chancellor to double down on the government's growth mission."
Challenges and Workforce Trends
With business costs continuing to weigh on private sector activity, growth, and investment, Dendy emphasized the need for broader solutions, such as lowering business energy costs and practical implementation of the Employment Rights Act. The survey also revealed that workforce numbers are expected to decline further in the three months to May, partially due to workplace rights reforms introduced through this act.
Although the CBI and other trade organisations secured a compromise with the government to abandon 'day one' rights for unfair dismissal, a raft of other reforms could increase regulatory burdens on businesses. These include enhanced powers for unions to organise strikes and expanded sick pay guarantees. A series of consultations on the bill, covering areas like maternity leave and trade union membership, are set to launch in February.
