Private sector expects steep decline in activity into 2025

Private sector firms expect activity to fall in the three months to March (weighted balance of -24%), according to the CBI’s latest Growth Indicator. Expectations are now at their weakest in over two years.

This pessimism was shared across all sub-sectors. Business volumes in the services sector are anticipated to decline (-18%), driven by predicted falls in both business and professional services (-13%) and consumer services (-37%). Distribution sales are expected to fall steeply (-35%), and manufacturers also anticipate output to fall (-31%), with expectations at their weakest since May 2020.

The disappointing outlook comes as private sector activity fell again in the three months to December, at a faster pace than in the three months to November (-21% from -13% in November). Activity has been flat or falling since August 2022.

Alpesh Paleja, CBI Interim Deputy Chief Economist, said:

“There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer. Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.

“As we head into 2025, firms are looking to the government to boost confidence and to give them a reason to invest, whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates.

“In the longer term, businesses will be looking to the industrial strategy to provide the stability and certainty which can unlock innovation and investment - and provide that much needed growth for the economy which can deliver prosperity for firms and households alike.”

Key findings from our monthly Services Sector Survey showed:

• Business volumes in the services sector fell in the three months to December (-18%), with the pace of the decline accelerating from November, with volumes having generally been flat or falling since mid-2022.

• Within this, business & professional services volumes fell (-14%), building on the marginal decline in the three months to November. Consumer services volumes also fell sharply (-35%), at a broadly similar pace to November.

• Hiring intentions within the services sector are weak. Business & professional services expect headcount to fall over the next three months (-17%), with expectations at their weakest since September 2020. Consumer services companies also anticipate numbers employed to fall sharply (-49%).

• Price growth expectations have accelerated from November (+20%) and stand above the long-run average (+7%). Inflation expectations for business & professional services ticked up in December (+13%, from +7% in November), and accelerated more prominently for consumer services firms, to their strongest in a year (+42%, from +21%).