The Confederation of British Industry (CBI) has delivered a sobering assessment of the UK's economic prospects, warning of a "disappointing outlook" for private sector activity in the coming months. This news represents another significant challenge for Chancellor Rachel Reeves, as businesses report fragile confidence amid persistent economic pressures.
Broad-Based Downturn Predicted
According to the CBI's January survey of businesses, which gathered responses from 904 firms between December 18 and January 13, a "broad-based" downturn in activity is expected over the next three months. The services sector, distribution sales including retail, and manufacturing are all anticipating declines. This follows a period where private sector activity fell across all sub-sectors in the three months leading to January.
Persistent Weak Growth Expectations
Alpesh Paleja, CBI deputy chief economist, stated that the latest research shows "persistently weak growth expectations." He remarked, "The UK economy has not experienced a strong start to 2026. While there are tentative signs of stabilisation and resilience in some specific areas, the big picture remains similar to much of last year: businesses remain cautious, households are downtrading and confidence is still fragile."
Paleja further warned that recent geopolitical tensions have added to uncertainty, while inflation remains "uncomfortably high" with an "uptick in price pressures." This situation risks "a further squeezing of margins and dampening of investment." He emphasised that if the government wants to shift the dial, it must focus on competitiveness fundamentals, including lowering the cost of doing business through decisive action on energy costs and streamlining regulation.
Political Reactions to Economic Concerns
The gloomy outlook has sparked immediate political reactions. The Conservative Party seized upon the CBI's findings as evidence of what they term Labour's failed economic policies. Andrew Griffith, shadow secretary for business and trade, commented, "The CBI are not quick to criticise so when they say business has had a bad start to the year, Labour should listen. The economy has been crippled under the stifling weight of Labour's Jobs Tax, business rate hike and the red tape 'UnEmployment' Act. Nothing is moving."
Griffith added that only the Conservatives would provide businesses with cheaper energy, lower taxes, and reduced red tape necessary to return to growth. This political exchange occurs against a backdrop where Chancellor Reeves has claimed the UK economy will "turn a corner" in 2026, despite inflation recording a surprise jump to 3.4 percent in December from 3.2 percent the previous month.
Employment and Sector-Specific Concerns
The CBI's research revealed specific concerns about employment across different sectors. Business and professional services companies expect headcount to fall slightly by 8 percent over the next three months, while consumer services firms anticipate a more significant reduction of around 29 percent. These figures come from the CBI Growth Indicator, a composite measure of activity based on survey responses from more than 1,000 represented companies.
Businesses have also been grappling with national insurance and business rate increases, adding to the challenging operating environment. The Treasury, however, pointed out that the CBI's latest growth forecast is not as pessimistic as previous assessments. A Treasury spokesman stated, "The OBR, Bank of England, IMF, OECD, and now the CBI, have all upgraded their growth forecasts for the UK – we will continue to defy the forecasts."
The spokesman highlighted government efforts to reform regulations to cut business costs and mentioned that the upcoming Budget would drive economic growth through protected investment funds, improved conditions for startups, and lower inflation to support rate cuts and boost business confidence.
