Private sector activity falls, with worse to come - CBI Growth Indicator

Private sector activity fell in the three months to August, with an even sharper decline expected in the next quarter, according to the CBI’s latest Growth Indicator.

The reduction in private sector activity (-5% from +8% in the quarter to July) is the first fall reported since March 2021.

However, sectoral performances were somewhat varied. Growth was reported in distribution sales (+7% from +3%), but business & professional services were stagnant (-1% from +19%) and declines were seen in both manufacturing output (-7% from +6%) and consumer services activity (-37% from -4%).

Looking ahead, activity is expected to fall at a faster rate (-12%) in the next three months. Distribution sales (0%) and manufacturing output (-2%) are expected to be broadly flat, with consumer services activity falling at a slower rate (-29%) and business & professional services activity falling into the red (-16%).

Alpesh Paleja, CBI Lead Economist, said: 

“The worsening cost-of-living crisis – set to escalate further when the new energy price cap comes into effect – is putting the brakes on private sector activity. As consumers are forced to rein in their own spending, firms are grappling with the twin challenges of reduced demand and rising costs.

“With even tougher months ahead, it’s imperative that government acts decisively and at pace to support vulnerable households and businesses – and to lay the foundations for renewed economic momentum.

“That will require a suite of measures designed to shore up business confidence and encourage fresh investment. Long-overdue business rates reform, a more flexible apprenticeship levy and a permanent successor to the super deduction can help equip businesses with the tools needed to kickstart activity and set us on a path to sustainable growth.”

The CBI Growth Indicator is a composite measure of activity, based on responses to CBI surveys. In total, 586 firms responded between 26 July and 15 August 2022.