Business sentiment in the UK private sector has slumped to its weakest level in nearly three years, as rising wage costs and mounting global trade concerns weigh heavily on economic outlook.
The latest “growth indicator” from the Confederation of British Industry (CBI) reveals that a net balance of 30 per cent of companies expect a decline in activity over the next three months—a further deterioration from the -26 per cent recorded in May, and the lowest figure since September 2022.
“There is little sign of summer cheer in our surveys,” said Alpesh Paleja, deputy chief economist at the CBI. “Private sector activity is expected to remain subdued over the next three months. Our surveys were already pointing to weaker momentum than official data at the start of this year and this sluggishness looks to have continued.”
The gloomy outlook spans every major segment of the economy. In services, a net balance of -32 per cent of firms forecast a drop in volumes, with business and professional services down -29 per cent, and consumer services even worse at -43 per cent. Distribution sales are projected to decline by -39 per cent, the weakest reading in the sector since September 2022. Manufacturing output is also expected to shrink, with a balance of -14 per cent.
Businesses cited a mix of domestic and global pressures behind the downturn in sentiment. On the home front, the effects of the spring budget continue to ripple through the economy. In April, Chancellor Rachel Reeves raised employer National Insurance contributions (NICs) from 13.8 per cent to 15 per cent, while also lowering the earnings threshold for those contributions. At the same time, the national living wage was increased, hitting labour-intensive industries particularly hard.
“Firms highlight numerous headwinds,” said Paleja. “These include the continued impact of higher employer NICs and the national living wage hike on their costs and operations; further uncertainty from developments in the global trade landscape; compounded by a general sense of weak demand at home.”
Internationally, UK businesses are facing growing anxiety about trade disruptions, particularly in light of newly announced tariffs by President Trump, which threaten to raise costs and complicate supply chains. Manufacturing and distribution firms, already battling margin pressures, are particularly exposed to shifts in global trade policy.
The CBI’s warning comes as other recent data paints a similarly challenging picture. A separate industry survey released this week revealed that nearly one in three hospitality businesses are now operating at a loss, following a surge in costs linked to recent tax hikes. More than 60 per cent of hospitality employers have already cut jobs or hours, and over half have cancelled investment plans.
The CBI called on the government to act swiftly to shore up business confidence and stem further economic drag. Key policy asks include a reformed business rates system, more flexibility around the apprenticeship levy, new incentives for occupational health, and broader support for innovation and investment.
“Against this backdrop of uncertainty, private sector firms are looking to the government for decisive action,” said Paleja. “Without intervention, the risk is that this period of low confidence and weak demand drags on longer than it needs to.”
The CBI’s monthly growth indicator, based on responses from 650 businesses across manufacturing, retail, and services, reflects sentiment between April 25 and May 14. The results follow a string of mixed economic indicators, with official GDP growth for Q1 showing a modest 0.7 per cent rebound—but with little sign of sustained momentum heading into the summer.
With inflation easing but business costs still elevated, firms now face a critical period. Many will be watching closely for signs that ministers are prepared to listen—and respond—to growing calls for targeted, business-friendly reforms.
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Private sector confidence hits lowest level since 2022 as wage and trade pressures mount