UK Business Activity Plunges Amidst Growing Economic Uncertainty

UK Business Activity Forecast Takes a Sharp Fall Amid Economic Downturn

The latest economic snapshot from the Confederation of British Industry (CBI) paints a grim picture for the UK business sector, with firms predicting a sharp decline in activity over the next three months. The CBI’s growth indicator survey reveals that businesses are preparing to cut down on hiring and reduce output as the economy struggles to recover from the COVID-19 pandemic.

Weakest Expectations for Growth Since November 2022

The CBI’s poll of 899 companies between November 25th and December 12th found that expectations for growth were at their weakest since November 2022. The service sector is expected to see a decline in activity, while manufacturers anticipate a sharp fall in output over the next three months.

Retailers Face Another Blow as Consumer Spending Forecasts Fall

Consumer spending forecasts have also taken a hit, with retailers facing a potential spending squeeze just as they unveil their January sales. The British Retail Consortium warned that if these expectations are realized, retailers could find themselves in a difficult situation.

Economic Data Continues to Erode Confidence

The CBI’s industrial trends survey published last Wednesday found total orders at UK factories had collapsed in December to the lowest level since the peak of the COVID-19 pandemic in 2020. The Bank of England also warned that UK growth is expected to flatline over the final three months of the year, following inflation rose on Wednesday to an eight-month high of 2.6%.

Experts Warn of Economic Slowdown and Rising Borrowing Costs

Analysts have cautioned that a dramatic economic slowdown paired with rising borrowing costs since the budget could undermine government finances and force the Chancellor to further increase taxes. City economists have also warned that rising inflation over the past three months would force the Bank to keep interest rates high, weighing on household spending and denting the government’s plans to grow the economy.

Trade War with the US Could Harm Growth Plans

The prospect of a trade war with the US after Donald Trump is inaugurated in January could also harm the government’s growth plans. The president-elect has threatened tariffs on exports to the US, which could be extended to include the UK.

Government Calls for Confidence and Investment

The CBI urged the government to boost confidence and give businesses a reason to invest. The Commons leader, Lucy Powell, defended the government’s track record on Sunday, while a Treasury spokesperson said that the government had made difficult decisions at the budget to fix the economy and deliver stability for businesses.

Support for Small Businesses and Investment in British Economy

The government has launched several initiatives aimed at supporting small businesses and boosting investment in the UK economy. These include providing 40% business rates relief next year for 250,000 properties, launching a 10-year infrastructure strategy, and creating pension mega funds to boost investment in British businesses and clean energy.