Businesses Brace for Economic Slowdown: CBI

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The UK economy faces a critical juncture as private sector growth expectations stall, according to the latest CBI Growth Indicator.

This news comes as businesses anxiously await the government's upcoming budget, hoping for measures to bolster confidence and stimulate investment.

The CBI report, a key barometer of business sentiment, revealed that firms anticipate no change in activity over the next three months, ending a seven-month streak of positive growth projections.

This projected stagnation reflects a broader trend of slowing economic recovery, as data from the three months leading to September showed a decline in activity across all sectors.

The CBI emphasises that this downturn underscores the need for decisive government action to revive growth and restore business confidence.

Alpesh Paleja, CBI Interim Deputy Chief Economist, says the survey points to the need for targeted government support, a point further emphasised by the CBI's call for a comprehensive industrial strategy.

This strategy, along with other measures like planning reforms and a clear roadmap for business taxes, forms the core of the CBI's recommendations for the upcoming budget. The organisation argues that such actions are necessary to encourage investment and foster a more stable economic environment.

The ONS on Monday downgraded UK growth for the second quarter of 2024 to 0.5% quarter-to-quarter from 0.6%.

The revision was driven by the ONS cutting real government spending growth to 1.1% q/q, from the 1.4% first estimate.

The ONS also cut the combined contribution to growth from net trade, valuables and inventories, as our chart below shows.

Q2 GDP growth now lies below the 0.6% q/q gain the Bank of England forecasted in August.

"On the face of it, this ought to give additional support for interest rate cuts, especially when combined with Q3 growth heading for 0.3% quarter-to-quarter growth, also 0.1pp weaker than the MPC’s August forecasts," says Robert Wood, Chief UK Economist at Pantheon Macroeconomics.

However, Wood does see some cause for optimism. He notes the ONS data revealed business capital expenditure growth was revised up and a fall in the saving rate signals a less cautious consumer.

Elsewhere, "surging mortgage approvals show consumers are responding quickly to the MPC’s interest rate cut," says Wood.