Private sector activity expected to decline through second quarter - CBI Growth Indicator

Private sector firms once again expect activity to fall over the next three months (weighted balance of -18%), according to the CBI's latest Growth Indicator. Expectations are broadly unchanged relative to last month.

Business volumes in the services sector are anticipated to decline (-20%), driven by a predicted fall in both business & professional services (-15%) and consumer services volumes (-34%). Distribution sales are also expected to fall significantly in the three months to June (-27%). Manufacturers anticipate output to be flat (-2%), but expectations here have worsened relative to last month, when they had briefly forayed into positive territory (+8%).

The weak outlook comes as private sector activity fell again in the three months to March (-27%), at the same pace as the quarter to February. All sectors reported falling business volumes.

Alpesh Paleja, Deputy Chief Economist, CBI, said:

"There doesn't appear to be much let up in the near-term economic outlook, with businesses once again expecting activity to decline. While the picture is mixed across firms, they continue to tell us that the impact of higher employer NICs, the upcoming rise in the National Living Wage and concern over the Employment Rights Bill are weighing on activity and sentiment.

"Partly as a result, cost and price pressures remain stubbornly firm, especially in the services sector. There are also growing reports of uncertainty around US tariffs impacting new demand and leading to some projects being paused or delayed. The combination of all of these issues is also weighing on consumer sentiment, serving to make households even more value conscious.

"However, the Chancellor has kept her promise to business not to raise the burden further. The government must now use the Spending Review to secure a more positive outlook for long-term growth. Measures around an ambitious goal for R&D spending, making it easier to invest in skills, and reducing the regulatory burden would remove some of the hurdles that businesses face in operating at their full potential."

Key findings from our monthly Services Sector Survey showed:

• Business volumes in the services sector declined in the three months to March (-27%), at a marginally slower pace compared to the quarter to February, but nonetheless extending a long run of flat or falling activity.

• Both business & professional services (-22%) and consumer services (-34%) volumes fell through the quarter.

• Hiring intentions within the services sector are weak. Business & professional services expect headcount to fall over the next three months (-14%). Consumer services companies also continue to expect another sharp fall in numbers employed (-36%).

• Price growth expectations (+27%) for the quarter to June remain strong and stand well above the long-run average (+7%). Inflation expectations for business & professional services ticked up from February (+24%, from +19% in February). While they eased slightly for consumer services firms (+41%, from +48%), price expectations here remain well above historic norms.