Private sector growth momentum remains weak – CBI growth indicator

Private sector activity fell in the three months to January (weighted balance of -11% compared with -8% in the three months to December), according to the CBI’s latest Growth Indicator. Activity has now been flat or falling for the last year and a half.

Services business volumes declined slightly in the three months to January (-5% from -8% in December), driven by falling volumes in consumer services (-25%). Business & professional services volumes were unchanged over the same period (0%). Manufacturing output slipped back into contraction (-10% from 0% in December), while distribution sales fell at the sharpest pace since July 2020 (-29%).

Private sector activity is expected to remain broadly stable over the next three months (+3%). However, there is some divergence in the outlook for individual sectors: services volumes (+10%) and manufacturing output (+7%) look set for a return to growth, broadly offsetting a further decline in distribution sales (-24%).

A brighter near-term growth outlook for the services sector was accompanied in January by an improvement in employment and price growth expectations. Hiring intentions returned to positive territory in services overall (+11% from -2% in December), with firms in both business & professional (+14%) and consumer (+5%) services expecting to boost headcount over the next three months. Price growth expectations for the next three months in the sector cooled slightly (+18% from +23% in December), principally reflecting a fall back in inflation expectations in consumer services (+15% from +48%).

Alpesh Paleja, CBI Lead Economist, said:

“The New Year has so far failed to breathe new life into the UK private sector, with our latest surveys signaling a continuation of last year’s weak growth momentum. There is some room for encouragement, with both services and manufacturing firms hopeful of seeing a pick-up in activity, however it does look like the economy overall is set to remain stagnant at best in the near term.

“The upcoming Budget is an opportunity to firm up the foundations of growth. Following encouraging policy announcements last Autumn, we now need a sustainable vision for the economy over the longer term and a plan to realise it. We must take further steps to address acute labour shortages, focus on making our business environment more competitive and invest meaningfully in high-growth industries."