UK Companies Expect Activity to Slow Due to High Costs and Weak Demand

UK companies expect activity to slow in the coming quarter due to high costs and weak demand, according to the Confederation of British Industry's latest growth indicator.

The report showed that private sector firms anticipate a decline in activity over the next three months, with a weighted balance of -14. The sectors most affected were distribution, business and professional services, and consumer services, which saw balances of -34, -10, and -12 respectively.

Alpesh Paleja, deputy chief economist at CBI, stated that the outlook for growth remains subdued. He noted that while there are some signs of resilience in parts of manufacturing and professional services, cost pressures remain strong, particularly around energy and employment, and coupled with weak demand, this continues to put pressure on margins, recruitment, and investment plans.

The Bank of England recently left interest rates unchanged at 3.75%, but warned that the cost of borrowing may increase if inflation, currently at 3.1%, cannot be reined in. The CBI's growth indicator is a composite measure of activity based on responses to the organisation's retail, services, and manufacturing surveys.