Growth expectations for UK companies have worsened decisively, CBI says | Confederation of British Industry (CBI)

Growth expectations for UK businesses have been dealt a decisive blow to Rachel Reeves amid warnings that business confidence has plummeted since the Budget.

Growth expectations have turned negative for the first time this year, according to the Confederation of British Industry's latest growth figures. This shows that the majority of businesses expect activity to decline in the three months to February.

Business volume in the services sector, including consumer services, is expected to decline, while companies in the business and professional services sectors expect activity to decrease rather than increase over the next three months.

The outlook was even more bleak, with private sector activity declining again in the three months to November, with all three major sectors – services, manufacturing and wholesale and retail – seeing declines in business volume, sales or output, according to the CBI.

Reeves' budget at the end of October included $40 billion in tax increases, including $25 billion from a rise in National Insurance Contributions (NICs) paid by businesses. The Prime Minister said the decision was needed to stabilize public finances and fund better public services.

Alpesh Paleja, CBI's interim deputy chief economist, said: “As we head into 2025, expectations for growth have deteriorated decisively. The survey shows that activity expected heading into the October Budget is already weakening and the Prime Minister's announcement will force businesses to make even tougher choices.

News that companies are planning to cut staff is concerning as hiring intentions are at their weakest since the end of the Covid-19 pandemic. This could be an early sign of the impact of rising labor costs due to future increases in employer NICs and rising national living wages.

CBI is calling on the Government to support the health of the workforce by quickly and decisively reforming business rates, providing apprenticeship levy flexibility and strengthening occupational health incentives.

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) acknowledges the government must make difficult decisions to help restore public finances, but says it believes the policies announced in the Budget and Employment Rights Bill have created a perfect storm for businesses in the capital. The government has said it 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 of Commerce say they are not confident that the government will listen to and address the concerns of the business community, and 77% are not confident that the government will successfully deliver on its promises to grow the economy.

A separate report released by the Institute of Directors over the weekend found business confidence had fallen to its lowest level since the early days of the Covid-19 pandemic. The economic confidence index, which measures the business community's optimism about the UK's economic outlook, fell from -52 in October to -65 in November, falling for the fourth consecutive month. This is the lowest reading since the low of -69 in April 2020.

LCCI's Snap survey of more than 200 business leaders found that almost four-fifths of businesses of all sizes said increasing their employer's national insurance would have a negative or very negative impact on their business, including almost half of them It has been shown to predict freezes and reduced employee wages. next few years.

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Businesses are also concerned about employment rights legislation, with 38% predicting the changes will mean a hiring freeze and 16% warning it will lead to job losses.

Just over three quarters of respondents believe the government has not engaged meaningfully with businesses on measures that include protection from unfair dismissal for employees from day one. universal right to sick pay from the first day of illness; Change the minimum wage and give more than 1 million zero-hours workers the right to guaranteed working hours if they want.

Karim Fatehi, Chairman of the London Chamber of Commerce, said: The Snap survey confirms our worst fears. The business community sees the combined package of increased employer National Insurance contributions, cuts to business rates relief and employment rights legislation as a serious threat to companies' operations in the coming years.

It also shows that London businesses are fast losing confidence in the government's economic growth strategy. Having overcome a cost-of-living crisis, soaring inflation, high borrowing costs and trade tensions, businesses need operating conditions that are conducive to economic growth rather than measures that curtail their ability to invest in their businesses, hire new people and train their staff.

LCCI research shows that family businesses are concerned about changes to Inheritance Tax (IHT), with more than a fifth saying they are likely to liquidate their family business rather than pass it on.

In relation to the IHT debate, research by CBI economic consultancy found that the decision to limit business property relief to $1 million could result in more than 125,000 job losses over the next few years and lead to a significant reduction in economic activity and lower tax revenues. It turns out that it can be done. The study, on behalf of the Family Business UK group, calculated that the legislation would reduce the value of goods and services produced across the economy by W9.4bn.

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