December sees fall in private sector activity

The private sector has experienced a year of decline in the face of persisting economic challenges in 2023, according to the latest growth indicator from the Confederation of British Industry (CBI).

The growth indicator shows that the three months leading up to December 2023 saw a marginal decrease in private sector activity, with a weighted balance of -8% — a slight improvement from the -11% in the three months to November.

This latest decline adds to the ongoing downward economic trend in the private sector, marking over one-and-a-half years without growth.

The economic outlook for businesses also remains bleak in the new year, as businesses anticipate the trend to persist with a forecasted decline of -6% in 2024.

Economic impact on sectors

According to the growth indicator, distribution sales saw the most significant dip in economic activity over this period (-16%) after falling by just 10% in the three months to November.

The services sector contracted modestly (-8%), a figure mainly driven by a downturn in business and professional services (-10%). Meanwhile, consumer service volumes remained unchanged at 0%.

Manufacturing emerged as the only sector to avoid a drop in activity during this three-month period, with output stabilising at 0% - a significant improvement from the -17% reported in November after four rolling quarters of contraction.

The CBI also found that firms in the services sector are not planning to adjust their staffing levels in Q1 of 2024 (-2%) as the demand outlook remains relatively neutral. However, firms in the consumer services sector expect to reduce their employee headcount slightly between January and March (-8%).

Services firms anticipate an increase in selling price growth in Q1 (+23%). Customer services reported a particularly significant uptick in inflation expectations, hitting +48% in December up from +18% in November.

Private sector activity is forecasted to contract further in the first three months of 2024, with distribution and consumer services set to hit -31% and -16% respectively. Business service activity is expected to stabilise at +2%, with manufacturing growth likely to return to marginal growth during the period (+5%).

CBI calls for measures to boost sustainable economic growth

Commenting on the persistent downward economic trend, CBI lead economist Alpesh Paleja said:

"December's growth indicator rounds off one-and-half years of either stagnation or falling activity in the private sector. While households and businesses have shown remarkable resilience in the face of strong headwinds, our surveys do not paint a picture of an economy that is thriving or growing sustainably.

"Unfortunately, our latest economic forecast shows that the economy is on track for another challenging year in 2024. It's clear that more needs to be done to boost the UK's productive capacity."

In light of these challenges, Paleja urged the Government to introduce more measures to boost economic growth in the private sector:

"Full capital expensing represents a commendable first step in this direction, but the Government must press ahead with a wider programme of measures around innovation, skills and decarbonisation that provide the foundations for sustainable economic growth."

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