CBI surveys point to improving growth momentum as sentiment rises

The CBI’s business surveys showed private sector activity stabilised in the three months to May, after a long period of decline; and activity is set to improve over the next three months driven by modest growth in all three sub-sectors of the economy. On the supply side, disruption has retreated from post-COVID highs and concerns around shortages of equipment and inputs have largely normalised. Altogether, this has led to an improvement in business sentiment since the beginning of the year.

However, despite some signs of easing, the tightness in the labour market is still a source of concern for firms across the economy. On the whole, firms seem set to raise headcount over the next three months, even as it’s been reported to us that some skills remain hard to find. Pay pressures have cooled since the end of 2023, and look set to continue falling, but remain elevated compared to pre-pandemic levels.

Higher interest rates are expected to impact firms’ investment plans, primarily due to higher borrowing costs. Our survey data suggests that planned investment centres around capital spending on IT in the services sector, and product & process innovation in manufacturing, alongside anecdote around investment in automation and tech adoption due to the pressures from a higher National Living Wage.

Our quarterly survey trends are a distillation of the results from our flagship business surveys of the private sector economy, and are used in stakeholder meetings with Whitehall, the OBR and the Bank of England.