Private sector growth slows sharply - Growth Indicator

Private sector growth slowed sharply in the three months to June (+5%, from +23), according to the CBI’s latest Growth Indicator, marking the slowest rise in activity since April 2021.

The slowdown was broad-based across sectors, with consumer services seeing the biggest hit (-41%), marking the sharpest fall experienced by the sector since February 2021. Growth also slowed across business & professional services (+10%) and distribution (+9%). The former was the weakest increase in activity in four months, and the latter the weakest since April 2021. The only sector to see a solid rise in output was manufacturing (+25%), though growth here also eased on the ten-month high seen in May (+30%).

Looking ahead, private sector activity is expected to be broadly flat in the next three months (-3%) - the weakest forward-looking expectations since February 2021. 

Consumer services volumes are set for another tough quarter (-43%), while business & professional services is predicted to stagnate (+2%) and distribution sales are expected to fall (-7%). Manufacturing output is expected to continue growing solidly (+20%), albeit at a slower pace than in the last three months. 

Alpesh Paleja, CBI Lead Economist, said: 

“With the post-pandemic recovery severely challenged by continually strong cost pressures, private sector activity is grinding to a halt. Firms across all sectors are being hit, but consumer-facing companies are faring worst, as consumers face the worst cost-of-living crunch in decades.

“With household spending hit, rapid action needs to be taken to boost business investment and stave off the worrying spectre of recession. Policies like introducing a permanent successor to the super-deduction could help bolster confidence and catalyse vital capital spending. 

“Longer-term, we need to look at post-Brexit regulatory reforms to support growth, innovation and sustainability, while enhancing UK competitiveness. Government and business also need to be better prepared to look globally for new avenues of growth, while demand falters at home.”

The CBI Growth Indicator is a composite measure of activity, based on responses to CBI surveys. In total, 457 firms responded between 25 May and 14 June 2022.