Private sector bosses are predicting activity to shrink again over the next three months when a fresh bout of inflation is expected to compound cost pressures hoisted upon them at last year’s Autumn Budget.
According to the Confederation for British Industry’s (CBI) Growth Indicator, more firms expect trading conditions to worsen in the three months to November than to improve, extending a run of negative predictions that began after the government’s maiden fiscal event last October.
The lobby group said negative sentiment could be found across the UK economy. Bosses in services, distribution and manufacturing – the three main sectors polled for the survey – all predicted slower business over the next quarter.
Pessimism was especially rife among those in ‘consumer services’ – meaning industries like hospitality and retail – whose reliance on a large quantity of low-skilled staff left them at the sharp end of the government’s £24bn employers national insurance raid and minimum wage hike.
Alpesh Paleja, deputy chief economist at the CBI, attributed the subdued outlook to businesses’ ongoing attempts to “grapple with sluggish demand, higher employment costs [and] increasing uncertainty”.
“There’s little evidence yet of a meaningful turnaround, and firms are increasingly focusing on building resilience and efficiency as they navigate a challenging economic environment – at the expense of capital spending and longer-term growth ambitions,” she said.
Sticky inflation to make life tricky for bosses
The next three months are expected to be especially difficult for British firms, with inflationary pressures expected to eat into firms’ already tight margins and keep interest rates higher for longer. Food inflation is expected to reach six per cent by the end of the year, while recent speeches from Bank of England officials have suggested its Monetary Policy Committee may opt against any more interest rate cuts in 2025.
The monthly survey, which polled some 877 companies, comes off the back of a string of mixed sentiment readings for the UK economy. In its most recent Business Barometer poll, Lloyds’ historically optimistic survey found business confidence to have nudged up to a decade high.
But other surveys, like the Institute of Directors’ most recent temperature check of bosses’ sentiment, have found pessimism to be the highest on record when it polled its members last month.
In a chink of good news for the Chancellor, Monday’s Growth Indicator showed expectations across most sectors were less weak than those seen in the first half of the year.
“Firms are already shouldering the cost of the government’s fiscal decision,” added Paleja. “The Autumn Budget must not add to that strain with further tax rises that risk undermining investment and growth. If the government wants to unlock growth, it must cut the cost of doing business, give firms tax certainty, deliver further flexibility to the Growth and Skills Levy, and rethink the Employment Rights Bill.”