Rachel Reeves told to make 'urgent' changes as business pessimism grows

Business volumes in the services sector are anticipated to decline (-20 per cent), driven by a predicted fall in business and professional services (-12 per cent) and the results gave the weakest expectations for consumer services (-49 per cent) since September 2022.

Distribution sales are expected to fall steeply (-30 per cent), and manufacturers also anticipate a decline in output (-19 per cent).

However, expectations among manufacturing firms are slightly stronger than in December, when firms’ predictions for falling output (-31 per cent) were the lowest since mid-2020.

It comes as private sector activity fell again in the three months to January (-23 per cent), at a broadly similar pace to the three months to December (-21 per cent). Activity has been flat or falling since August 2022.

Alpesh Paleja, Interim Deputy Chief Economist, CBI said: “After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity.

"Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers. Anecdotes suggest that companies are being hit by lacklustre demand and caution among consumers, while also continuing to adjust to measures announced in the Budget.

“There is an urgent need to get momentum back into the economy. The government can help shift the UK’s economic narrative with more determined focus on measures that could drive growth.

“Reforming the business rates system, implementing flexibility in the Apprenticeship Levy and supporting people to stay in work through expanding employer occupational health provision can help.

“With forecasts of underwhelming growth this year and less headroom for business investment, the way forward lies in the government and firms working together to deliver on their growth plan to restore confidence and get the economy firing on all cylinders.”

The CBI’s monthly Services Sector Survey showed business volumes in the services sector fell in the three months to January (-24 per cent), with the pace of decline accelerating from December. Volumes have generally been flat or falling since mid-2022.

Within this, business and professional services volumes fell (-16 per cent), at a similar pace to the three months to December. The decline in consumer services volumes accelerated, with activity falling at its fastest pace in over two years.