Rachel Reeves has been dealt another blow after firms warned of a drop in private sector activity amid ‘fragile’ confidence.
The Confederation of British Industry (CBI) said it has a ‘disappointing outlook’ for the next three months following its January survey of businesses.
It predicted a ‘broad-based’ downturn in activity, with expected drops in the services sector, distribution sales including retail, and in manufacturing.
It comes after private sector activity across the board fell in the three months to January, with all sub-sectors reporting a fall.
The CBI, which represents more than 1,000 companies, delivered its verdict as the Chancellor claimed the UK economy will ‘turn corner’ in 2026.
This is despite inflation recording a surprise jump, with the headline CPI rate hitting 3.4 per cent in December, from 3.2 per cent the previous month.
Businesses have also been struggling with national insurance and business rate hikes.
Rachel Reeves (pictured) has been dealt another blow after firms warned of a drop in private sector activity amid ‘fragile’ confidence
Alpesh Paleja, CBI deputy chief economist, said the latest research shows ‘persistently weak growth expectations’.
He said: ‘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.
‘Recent geopolitical tensions will only have added to uncertainty at the margin.’
He warned that inflation is ‘uncomfortably high’ and there has been an ‘uptick in price pressures’, which risks ‘a further squeezing of margins and dampening of investment’.
He added: ‘If the Government wants to shift the dial, it must focus on the fundamentals of competitiveness.
‘That means lowering the cost of doing business, starting with decisive action on energy costs and streamlining regulation to give firms the confidence to invest.’
The gloomy outlook was seized upon by the Tories last night, who said it was more evidence of Labour’s failed economic policies.
Andrew Griffith, shadow secretary for business and trade, said: ‘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 rates hike and the red tape ‘UnEmployment’ Act. Nothing is moving.
‘Only the Conservatives will give business the cheaper energy, lower taxes and slashed red tape we need to get back to growth.’
The research found business and professional services companies expect headcount to fall slightly over the next three months by 8 per cent, while consumer services firms expect a more significant fall in numbers employed, at around 29 per cent.
The figures are from the CBI Growth Indicator, which is a composite measure of activity, based on responses to CBI surveys.
In total, 904 firms responded between 18 December and 13 January.
A Treasury spokesman pointed out that the CBI’s latest growth forecast is not as pessimistic as it has been previously.
They said: ‘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.
‘We are reforming regulations to cut costs for businesses and the Chancellor’s Budget will drive economic growth through billions of pounds protected for new investment, better conditions for start-ups to scale and grow, and lower inflation to support rate cuts and spur business confidence.’
