Private Sector Activity Falls But Expectations Hold Firm – CBI Growth Indicator

Private sector activity fell again in the three months to April (weighted balance of -14%, compared with -12% in the three months to March), according to the CBI’s latest Growth Indicator. Activity has now been flat or falling in our surveys since mid-2022.

Business volumes in the services sector fell at a faster pace in the quarter to April (-21% from -11% in March) driven by accelerated declines in both business & professional services (-19%) and consumer services (-30%). Elsewhere, distribution sales continued to fall modestly (-10% from -9% in March), but manufacturing output was broadly flat in April (+3% from -18%); the latter marked the firmest outturn since July 2023.

Despite weakening activity, hiring intentions within the services sector stood their ground. Both business & professional services (+12% in April, from +13% in March) and consumer services (+11%, from +17%) companies expect headcount to rise modestly over the next three months.

Price growth expectations for services firms eased in April (+19%, from +28% in March), driven by softer inflation expectations in business & professional services (+18% from +30%; and well above the long-run average of +2%) while consumer services expectations were little changed from last month (+19% from +22%).

Overall, private sector activity is expected to rise modestly over the next three months (+10%), with volumes in both services (+13%) and manufacturing (+11%) expected to see growth. Growth in services is expected to be driven by an uptick in business & professional services (+15%), and marginal growth in consumer services (+4%). But distribution sales are anticipated to be unchanged in the three months to July (0%).

This was another disappointing quarter for economic activity, which extended its long run of decline and stagnation. However, expectations remain firm, and suggest the UK economy will begin to rebound over the next three months.

Getting the economy motoring again can’t come quickly enough for hard-pressed businesses and consumers. Ramping-up policy interventions that build confidence and reduce the cost of doing business would really help to unleash the pent-up business investment we need to accelerate a return to sustainable growth.