Private sector activity expected to flatline over next three months
Private sector activity is expected to be broadly flat in the three months to August (+1%), marking the lowest expectations for private sector growth since February 2021. That’s according to the CBI’s latest Growth Indicator.
Within this, manufacturing output growth is expected to remain solid (+23%). Business & professional services activity (-1%) and distribution sales (+3%) are expected to be broadly flat, while consumer services activity is expected to fall (-23%).
Our latest business surveys also show a sharp deterioration in optimism over the three months to May, across all key sectors. The fall in confidence among manufacturers (-31%) and business and professional services (-21%) was the sharpest since mid-2020.
Expectations for the next three months contrast with reported growth in the three months to May, which picked up slightly to a six-month high (+23%, from +19% in April).
Both business & professional services activity (+28% from +22%) and manufacturing output (+30%, from +19%) saw faster rates of growth. Distribution volumes grew at a similarly solid pace to last month (+23%, from +25%), whilst consumer services output remained broadly flat (0%, from +3%).
Alpesh Paleja, CBI lead economist, said: “It’s worrying that expectations for private sector activity have worsened, but unsurprising given that headwinds continue to intensify. With the cost-of-living crisis front of mind, consumer services firms will particularly be feeling the squeeze in the coming months and beyond.
“The Chancellor’s new targeted support package for low-income households is the right thing to do and will help people facing real hardship. But addressing faltering business confidence will require more action.
“Amid a worsening economic outlook, the Government must work with business on a genuine plan for increasing business investment and get growth going again, particularly as costs continue to soar.”
A supplementary question this month asked what actions, if any, businesses were taking and/or planning to take to strengthen supply chain resilience in response to ongoing global supply disruption. The most common response was holding higher levels of inventories temporarily, which a majority of manufacturers (68%) and distribution firms (59%) are doing or planning to do, while around a quarter (23% and 24% respectively) were doing so on a permanent basis.
The second most cited option was to diversity supply chains (48% and 36%). By comparison, onshoring (11% and 5%) or nearshoring (8% and 5%) part or all of operations were the least popular options.
