The UK private sector expects activity to fall again over the next three months, with the Confederation of British Industry’s Growth Indicator showing the weakest outlook since September 2022.
The CBI said private sector companies expect activity to decline in the three months to August, with a weighted balance of -30%. Business volumes in the services sector are expected to fall by -32%, with weakness across both business and professional services and consumer services.
Distribution sales are also expected to fall, with a balance of -39%, while manufacturing output expectations remain negative at -14%.
The subdued outlook follows a further fall in private sector activity over the three months to May, with a weighted balance of -26%, down from -19% in April. The CBI said the decline was broad-based across all sectors.
Alpesh Paleja, deputy chief economist at the CBI, said: “There is little sign of summer cheer in our surveys, with private sector activity 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 since.
“Firms highlight numerous headwinds: 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.
“Against this backdrop of uncertainty, private sector firms are looking to the government for decisive action to restore business confidence and boost growth.
“With the Spending Review and Industrial Strategy less than two weeks away, the government has a critical opportunity to drive innovation, investment and sustainable economic growth – through expanding the Made Smarter Programme, delivering a real National Tech Adoption Plan, reforming business rates, delivering flexibility around the Apprenticeship Levy and increasing incentives for occupational health.”
The Growth Indicator adds to a run of weak signals across the UK economy. Manufacturing orders have already fallen to their lowest level in six years, with industrial companies reporting weaker demand and pressure across supply networks. The CBI’s latest figures suggest that the softness is now spread across services, distribution, and manufacturing rather than concentrated in one part of the economy.
Cost pressure is central to the outlook. Higher employer National Insurance contributions and increases to the National Living Wage have raised labour costs while many companies are still dealing with narrow margins. The pressure is uneven across the economy, but labour-intensive sectors such as retail, hospitality, logistics, care, and consumer services are more exposed than higher-margin or more capital-intensive industries.
Weak demand makes that adjustment harder. Companies can absorb higher costs more easily when sales volumes and pricing power are strong. When customers are cautious, passing costs on becomes harder, and margin protection tends to shift towards hiring restraint, delayed investment, reduced discretionary spending, and operational efficiency work.
Trade uncertainty adds another constraint. Businesses with international supply chains have faced volatility around tariffs, shipping, energy, currency, and customer confidence. Even where direct trade exposure is limited, uncertainty can slow capital spending and procurement decisions as companies wait for clearer conditions.
The data sharpens the government’s growth challenge. Industrial strategy, skills policy, business rates, tax certainty, and technology adoption are all being assessed against a private sector that remains cautious. Policy can support investment, but companies need confidence that demand, costs, and regulation will not shift materially before returns are realised.
The CBI’s call for a National Tech Adoption Plan reflects the UK’s productivity problem. The country has strong technology sectors and high interest in AI, but adoption across the wider business base remains inconsistent. Smaller companies in particular may lack the management capacity, digital infrastructure, and capital needed to turn technology into measurable productivity gains.
The report also raises a leadership challenge for the second half of the year. Many companies will need to balance cost control with targeted investment, avoiding the temptation to protect margins by cutting too deeply into capacity, innovation, and customer service. At the same time, aggressive investment into weak demand can strain cash flow and heighten exposure if sales do not recover.
The strongest operating response is likely to be selective rather than defensive. Automation where returns are clear, workforce development where capability gaps are blocking output, and disciplined pricing where customers remain sensitive will all require careful sequencing.
The CBI’s survey does not point to a collapse in activity, but it does show a private sector entering the summer with limited momentum. After several years of inflation, wage pressure, supply disruption, and policy uncertainty, companies have little appetite for avoidable shocks and limited room to absorb further cost increases without changing hiring, investment, and operating plans.
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