UK private sector braced for tough start to 2025 - CBI

(Sharecast News) - UK companies expect 2025 to get off to a poor start, an industry survey showed on Monday, weighed down by rising labour costs and weak sentiment.

According to the latest Confederation of British Industry Growth Indicator, private sector firms expect activity to fall in the three months to February 2025, with a weighted balance of -10.

It is the first time this year growth expectations have been negative.

Overall business volumes were forecast to ease, with a balance of -13. Business and professional services firms expected a more modest fall than those in consumer services, however, with contrasting balances of -7 and -33 respectively.

Away from services, and distribution sales were also expected to decline, with a balance of -20. But manufacturers were optimistic output would rise, albeit modestly, with a balance of 9.

The CBI said October's Budget had hit sentiment across the private sector.

Alpesh Paleja, interim deputy chief economist at the CBI, said: "As we head into 2025, expectations for growth have taken a decisive turn for the worse.

"Anticipated activity was already weakening heading into the Budget, and the chancellor's announcements have left businesses with even more tough choices to make.

"News that firms are planning to reduce headcount is a concern, with hiring intentions at their weakest since the tail-end of the pandemic. This could be an early sign of the impact of the higher labour costs from the upcoming rise in employer National Insurance Contributions, and the uprating in the National Living Wage."

Hiring intentions were at their weakest since January 2021, the CBI noted, with headcounts likely to be trimmed in the three months to February.

The CBI Growth Indicator is a composite index of CBI's core business surveys: industrial trends, distributive trades and service sector. In total, it surveyed 889 firms between 25 October and 14 November.

A balance is the weighted percentage of companies reporting an increase minus those reporting a decrease.