Decline in private sector activity expected to accelerate in Q1

Businesses posted their weakest expectations for growth since June 2020 in the three months to January, following England and Scotland joining Wales and Northern Ireland in lockdown. That’s according to the CBI’s monthly Growth Indicator.

The composite measure – based on 638 responses to CBI surveys between December 16 and January 14 – found that private sector activity is expected to decline at a sharper pace in the three months ahead (-29%), compared to the past three months (-18%).

Consumer services firms expect activity to fall at the sharpest pace (-79%), after another heavy decline over the past quarter (-59%). Distribution sales volumes (-45%) and manufacturing output (-24%) are also anticipated to fall. However, business and professional services expect another easing in the rate of decline (-6%).

This downbeat assessment follows another decline in overall private sector activity for the three months to January (-18%, from -21% in December).

Within this, manufacturing activity was broadly flat (-2%, from -6% in December), marking the sector’s most positive performance in 16 months. Business and professional services activity fell at a slower pace (-12%, from -21%), while consumer services saw another sharp decline (-59%, from -59%). Distribution volumes fell after being broadly flat last month (-14%, from -2%), mostly due to a sharp fall in retail sales.

Alpesh Paleja, CBI Lead Economist, said:

“Private sector activity took a battering in 2020, and the early days of 2021 have offered little respite. The latest lockdown has bitten deeply across sectors, and with restrictions likely to last for the majority of the first quarter, it is no surprise to see pessimistic expectations for the months ahead.

“Business understands the health imperative, but will be looking to Government to deliver a tangible roadmap from lockdown to recovery. That means increasing transparency around the thresholds for lifting restrictions and rolling out mass vaccinations at speed.

“It is critical that businesses continue to be supported until demand returns and activity resumes. Extending the Job Retention Scheme until the end of June, removing the business rate relief cliff edge in April and re-examining the case for VAT deferrals will provide much-needed breathing space.

“The outlook remains bleak right now, but there are tangible reasons to believe brighter days lie ahead. We must do all we can to ensure that viable businesses survive, so they can drive a recovery later in 2021.”