Light at the end of the tunnel for private sector growth momentum - CBI Growth Indicator

Private sector activity fell again in the three months to March (weighted balance of -12%, compared with -6% in the three months to February), according to the CBI’s latest Growth Indicator. Activity has now been flat or falling for 20 consecutive rolling-quarters.

Business volumes in the services sector fell at the fastest pace since January 2023, (-11%, from -2%). This was driven by declines in both consumer services (-17%) and business & professional services volumes (-10%), the latter picking up on last month. Elsewhere, the pace of declines in both manufacturing output (-18% from -19%) and distribution sales (-9% from -7%) were broadly unchanged from last month.

Within the services sector, the weak picture on activity stood in contrast to firmer employment expectations. Business & professional services companies expect headcount to rise over the next three months (+13%, unchanged from the three months to February) while consumer services also expect headcount to grow, in a reversal from last month (+17%, from -17%).

Price growth expectations for services firms strengthened in March (+28%, from +19%): driven by an acceleration in business & professional services (+30% from +19%; and well above the long-run average of +2%) while consumer services expectations were little changed from last month (+22% from +21%).

Overall, private sector activity is expected to rise modestly over the next three months (+11%). Volumes across all three sub-sectors – services (+14%) manufacturing (+8%) and distribution (+6%) – are expected to see growth. Though within the services sector, consumer services firms still expect a small decline in activity (-6%).

Alpesh Paleja, CBI Lead Economist, said:

“Private sector activity fell again in the quarter to March, underscoring just how challenging operating conditions are for businesses at present. It’s encouraging that firms remain optimistic about a return to growth in the next three months. But given the long run of disappointing data in our surveys, this is far from guaranteed.

“Indeed, headwinds to growth remain strong. With hefty uplifts in business rates and the National Living Wage coming into force next month, government should be mindful about supporting companies with the rising cost of doing business. Firms are also looking for more focus on the transition to Net Zero, with emphasis around developing an investment plan to crowd in the private finance needed to deliver a clean energy transition”.