Firms across the UK private sector expect momentum to remain weak in the run up to the new Chancellor’s first Budget in October – but businesses’ overall outlook is the least pessimistic in almost two years, according to the CBI’s latest Growth Indicator report.
While firms across the private sector still expect activity to fall in the next three months (weighted balance of -11%), expectations are the least negative since November 2024.
The improvement in the outlook is driven primarily by business and professional services firms, who expect volumes to be broadly unchanged (-3%), and manufacturers predicting only a modest fall in output (-7%). However, activity is expected to fall more significantly among distribution (-21%) and consumer services firms (-31%).
The modest improvement in the outlook comes as private sector activity fell in the three months to August (-23%), broadly in line with the average pace of decline reported since late 2024. All sub-sectors reported falling activity.
Alpesh Paleja, CBI Deputy Chief Economist, said:
“It’s encouraging that expectations for growth are the least negative in two years, which chimes with signs of resilience in other economic indicators. But the outlook is very mixed across sectors, with conditions more difficult among household-facing firms. Overall, our surveys paint a picture of a tentative move towards stabilisation, rather than strong, sustained growth.
“Business’ diagnosis of conditions remains the same: subdued demand and confidence, coupled with intense cost pressures hitting margins. If the Government wants to further strengthen growth expectations, it must use the Autumn Budget to cut the cost of doing business and restore competitiveness.
“That means reducing employer NICs to support hiring, removing legacy policy costs from electricity bills, and delivering fundamental business-rates reform that replaces punitive cliff edges, supports investment in premises and helps businesses revitalise high streets across the country.”
A balance is the weighted percentage of companies reporting an increase minus those reporting a decrease.
Full results are in the embargoed attachment accompanying this release.
Meanwhile, the latest British Chambers of Commerce (BCC) Economic Forecast suggests the outlook for the UK will remain uncertain. While the economy was more resilient in Q2 than expected, higher energy and business costs are likely to keep growth weak this year and next.
The key points in the forecast are:
- GDP in 2026 is expected to grow by 1.0% (compared with 0.9% in the previous forecast) then 1.0% in 2027, rising to 1.3% in 2028.
- Faced with a raft of domestic cost pressures and global headwinds, business investment is now expected to fall by 0.2% this year, followed by a rise of 0.4% in 2027, and 1.2% in 2028.
- Inflation is forecast to peak at 3.6% by the end of this year (3.8% in the previous forecast) before easing to 2.3% by Q4 2027.
- Unemployment is forecast to be 5% by the end of 2026 and then peak at 5.4% in 2027. Youth unemployment is expected to reach a high of 17.6% next year.
- The Middle East conflict and US tariffs mean exports are likely to only grow by 0.4% in 2026, improving to 1.3% in 2027.