Private sector activity endures a year of decline – CBI Growth Indicator

Private sector activity fell slightly in the three months to December (weighted balance of -8%, from -11% in the three months to November), according to the CBI's latest Growth Indicator. The latest decline extends a stretch of one-and-a-half years without growth, a trend which firms expect to continue in the new year (-6%).

Services business volumes continued to fall at a modest pace (-8% from -9% in November), driven by a mild contraction in business & professional services (-10%) while consumer services volumes were unchanged (0%). Distribution sales also declined again (-16%, from -10% in November). Only manufacturing avoided falls in activity, with output stabilising (0%, from -17% in November) after four rolling quarters of contraction.

Against the backdrop of a relatively neutral demand outlook, services firms are not planning any changes to their staffing levels in the first quarter of 2024 (-2%), though those in consumer services do expect to trim headcount slightly over this period (-8%). However, services firms still anticipate firm selling price growth over the next three months (+23%), with a notable uptick in inflation expectations reported by consumer services (+48%, from +18% in November).

Looking ahead to the first quarter of 2024, activity in the private sector is expected to contract slightly once again. The downturns in distribution and consumer services are set to gather pace (-31% and -16%), against a stabilisation in business services activity (+2%) and a return to marginal growth in manufacturing (+5%).

Alpesh Paleja, CBI Lead Economist, said:

"December's Growth Indicator rounds off one-and-half years of either stagnation or falling activity in the private sector. While households and businesses have shown remarkable resilience in the face of strong headwinds, our surveys do not paint a picture of an economy that is thriving or growing sustainably.

"Unfortunately, our latest economic forecast shows that the economy is on track for another challenging year in 2024. It's clear that more needs to be done to boost the UK's productive capacity. Full capital expensing represents a commendable first step in this direction, but the Government must press ahead with a wider programme of measures around innovation, skills and decarbonisation that provide the foundations for sustainable economic growth."