Private sector growth expectations pick up – CBI Growth Indicator

Private sector firms expect modest growth in activity over the next three months (weighted balance of +9%), according to the CBI’s latest Growth Indicator. Growth expectations have been positive since the start of the year and have ticked higher over the last three months.

Activity is expected to be driven by strong growth in manufacturing (+25%, the strongest expectations since March 2022), and more modest growth in services (+11%). Within the latter, business & professional services volumes are set to rise (+17%), but consumer services activity is anticipated to be flat (-3%). Furthermore, distribution sales are expected to fall once again (-14%).

Expectations for growth come after activity fell in the three months to July (-14%), at a faster pace than in June. This decline was generally broad-based across sectors, with only manufacturing output not falling through the quarter.

Alpesh Paleja, CBI Interim Deputy Chief Economist, said: 

“It’s reassuring to see that expectations for growth have accelerated in our latest set of surveys. Much of this follows the worst of the inflation crisis now being behind us, with companies’ pricing expectations also cooling noticeably in our latest surveys.

“However, there are some notes of caution to temper the growing optimism. Growth outturns have been more disappointing than expected, with consumer-facing sectors still having a particularly hard time.

“It’s vital that the Government now presses ahead with the growth enhancing measures outlined in the Kings’ Speech. That, alongside a reduced rate of inflation, should allow a broader range of sectors to thrive in the months ahead.”

Key findings from our monthly Services Sector Survey showed: 

• Business volumes in the services sector fell modestly in the three months to July (-11), at the same pace to June. Within this, business & professional services volumes contracted marginally (-6%), at a similar pace to June. Consumer services volumes fell more sharply (-30%), marking seven consecutive rolling-quarters of falling activity.
• Hiring intentions within the services sector are mixed. Business & professional services expect headcount to rise over the next three months (+17%), but consumer services companies anticipate numbers employed (-15%) to drop for the first time since February.
• Price growth expectations for services firms were broadly unchanged in July (+9% from +10% in June), standing marginally above their long-run average (+7%). Inflation expectations in consumer services fell (+7%, from +17%) to their lowest since mid-2021, while business & professional services expectations were little changed from last month (+10% from +8%).