Growth expectations among UK firms take ‘decisive turn for worse’, says CBI | Confederation of British Industry (CBI)
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Growth expectations among UK companies took a “decisive turn for the worse” in a fresh blow Rachel Reeves amid warnings that business confidence has collapsed since the Budget.
For the first time this year, growth expectations have turned negative, according to the latest growth indicator from the Confederation of British Industry, which shows most companies expect activity to fall in the three months to February.
The volume of business in the services sector is expected to decline, including in consumer services, with more firms in the business and professional services sectors expecting a decline in activity than growth over the next three months.
The gloomier outlook comes as private sector activity eased again in the three months to November, according to the CBI, with all three main sectors – services, manufacturing and wholesale and retail trade – reporting declines in business volumes, sales or output.
Reeves’ budget at the end of October contained £40bn of tax increases, including £25bn of increases in National Insurance Contributions (NICs) paid by companies. The chancellor said the decisions were necessary to stabilize public finances and fund better public services.
Alpesh Palezha, the CBI’s interim deputy chief economist, said: “As 2025 approaches. growth expectations took a decisive turn for the worse. Our surveys show that expected activity has already weakened in the run-up to the October Budget and the Chancellor’s announcements have left businesses facing an even tougher choice.
“News that firms are planning to cut headcount is worrying, with hiring intentions the weakest since the end of the Covid-19 pandemic. This could be an early sign of the impact of higher labor costs from the upcoming rise in employers’ NICs and the rise in the National Living Wage.
The CBI is calling on the Government to take “swift and decisive action to reform business rates, provide flexibility to apprenticeship fees and increase occupational health incentives to support the health of the workforce”.
Business leaders are concerned about the UK government’s ability to deliver growth over the next five years. The London Chamber of Commerce and Industry (LCCI) said it recognized the need for the Government to take tough decisions to help restore the public finances, but believed the policies announced in the Budget and labor rights bill created a “perfect storm” for business in the capital. It says the government will not be able to achieve the long-term growth it has made a cornerstone of its strategy.
Some 81% of business leaders who are members of the chamber said they were not confident the government would listen to and respond to the concerns of the business community, and 77% were not confident the government would succeed in its commitment to economic growth .
Business confidence fell to its lowest level since the early months of the Covid-19 pandemic, according to a separate Institute of Directors report at the weekend. The economic confidence index, which measures business leaders’ optimism about the outlook for the UK economy, fell to -65 in November from -52 in October, the fourth straight monthly decline. This is the lowest reading since the record low of -69 in April 2020.
LCCI’s preliminary survey of more than 200 business leaders found that almost four-fifths of businesses of all sizes said increased employer national insurance would have a negative or very negative impact on their business, leading to almost half predicting a hiring freeze and lower staff pay in the coming years.
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Businesses are also concerned about the employment rights bill, with 38% predicting the changes will mean a hiring freeze, while 16% warn it will lead to job losses.
Just over three-quarters believe the government has not engaged meaningfully with business on measures that include unfair dismissal protections from day one; universal right to sickness benefit from the first day of illness; changes to the minimum wage and giving more than 1 million people on zero-hours contracts the right to guaranteed working hours if they want them.
Karim Fatehi, Chief Executive of the London Chamber, said: “This momentary survey has confirmed our worst fears; the business community sees the combined package of increased employer national insurance contributions, cuts to business rate relief and the Work Bill of Rights as a serious threat to their operations in the coming years.
“It also shows that London business is rapidly losing faith in the government’s strategy for economic growth. Overcoming the cost of living crisis, rising inflation, higher borrowing costs and trade tensions, businesses need working conditions that support economic growth, not measures that limit their ability to invest in their businesses, hire new people and to train their staff.’
Family businesses are worried about changes to Inheritance Tax (IHT), with just over a fifth saying they are likely to close their family businesses rather than hand them over, according to LCCI research.
Weighing in on the IHT debate, research by economic consultancy CBI found that a decision to cap business property relief at £1m could lead to the loss of more than 125,000 jobs over the coming years and lead to a significant reduction in economic activity and lower tax revenues. The research, carried out on behalf of the group Family Business UK, estimated that the measure would also reduce the value of goods and services produced across the economy by £9.4bn.
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