Firms hit by sharp slowdown in activity as confidence weakens, CBI finds

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UK businesses have experienced a sharp decline in activity over the past month and expect trading conditions to remain weak until at least March, according to a new survey from the Confederation of British Industry.

The CBI’s latest growth indicator for the private sector showed a weighted balance of -34 per cent, indicating that a significant majority of firms reported falling activity over the past three months. Companies surveyed said they expected the sluggish conditions to persist into the early spring, underscoring continued fragility across the economy.

Economists said the downturn was partly driven by cautious consumers, who reined in spending amid weeks of intense speculation ahead of November’s Budget. Despite that uncertainty now easing, businesses report little evidence of a rebound.

Alpesh Paleja, deputy chief economist at the CBI, said the figures capped a disappointing year for private sector growth. “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.

Paleja added that pre-Budget uncertainty had delayed investment decisions and major projects, leaving pipelines of work constrained. “The latest growth indicator suggests that the alleviation of this uncertainty hasn’t materially boosted activity,” he said.

The survey echoes other recent data pointing to a fragile economic backdrop. The Office for National Statistics reported earlier this month that the UK economy contracted by 0.1 per cent in October, while retail sales volumes also fell in November despite the annual Black Friday promotions.

Labour market indicators have also weakened. Hiring intentions across the services sector have dropped to their lowest level since July 2020, during the early stages of the Covid-19 pandemic. Analysts link the slowdown in recruitment to higher employment costs following the £25 billion rise in employers’ national insurance contributions and a 6.7 per cent increase in the minimum wage, combined with subdued consumer demand.

While inflation has eased — falling to 3.2 per cent in November from 3.6 per cent the previous month — businesses are planning to raise prices more quickly over the coming quarter to offset rising costs. The fall in inflation prompted the Bank of England to deliver its fourth interest rate cut of the year last week, offering some relief to households and firms.

Looking ahead, the outlook remains muted. The International Monetary Fund expects the UK economy to grow by 1.3 per cent in 2026, a pace that remains weak by pre-pandemic standards. Financial markets believe the Bank of England could cut interest rates once or twice more next year, a move that may help support consumer confidence, spending and growth — but for now, businesses appear braced for a challenging start to the year.