While politicians trade optimism about where the economy is headed, many firms are dealing with a far more uneasy reality on the ground.
New research suggests that confidence across the private sector remains fragile, with activity already slowing and little sign of a quick rebound.
CBI flags a broad slowdown across the private sector
The Confederation of British Industry (CBI) has warned that private sector activity is slipping, delivering another uncomfortable moment for Chancellor Rachel Reeves.
After surveying businesses in January, the CBI said its outlook for the next three months is “disappointing,” pointing to a broad-based downturn.
According to the survey, companies expect weaker activity across several key areas, including services, retail and wider distribution sales, as well as manufacturing.
This follows a poor three-month period to January, during which every major private sector sub-sector reported a decline.
Confidence remains fragile despite government optimism
The warning comes as the Chancellor insists the UK economy will “turn a corner” in 2026.
That message, however, is landing at a time when inflation has surprised on the upside, with the headline CPI rate rising to 3.4 per cent in December, up from 3.2 per cent the month before.
Businesses are also feeling pressure from higher national insurance contributions and increased business rates, which many say are squeezing already tight margins.
Economists see weak growth expectations lingering
Alpesh Paleja, the CBI’s deputy chief economist, said the findings highlight “persistently weak growth expectations” and a slow start to the year.
In his words, the overall picture looks uncomfortably familiar.
While there are early signs of stability and resilience in a few pockets of the economy, most businesses remain cautious.
Households are still trading down, and confidence has yet to recover meaningfully.
Added geopolitical tensions, he warned, are only increasing uncertainty at the edges.
Inflation and costs threaten investment plans
Paleja also pointed to inflation as a growing concern.
With price pressures ticking up again, businesses face the risk of further margin squeezes, making them even more hesitant to invest.
He argued that if the government wants to genuinely change the mood, it needs to focus on the basics of competitiveness.
That means cutting the cost of doing business, tackling high energy prices, and simplifying regulation so firms feel confident enough to invest and grow.
Political fallout as Conservatives seize on the data
Unsurprisingly, the gloomy assessment was quickly taken up by the Conservatives, who say it underlines what they describe as the failure of Labour’s economic approach.
Andrew Griffith, the shadow secretary for business and trade, said the CBI is not known for rushing to criticism, adding that Labour should take the warning seriously.
He blamed weak momentum on what he called the burden of higher taxes, rising business rates, and increased regulation, arguing that only the Conservatives would deliver cheaper energy, lower taxes, and less red tape.
Jobs outlook raises further concerns
The survey also paints a worrying picture for employment.
Business and professional services firms expect their headcount to dip slightly over the next three months, by around 8 per cent.
In consumer services, expectations are far worse, with companies anticipating employment falling by roughly 29 per cent.
These findings come from the CBI Growth Indicator, a composite measure based on responses from 904 firms surveyed between 18 December and 13 January.
Treasury pushes back on the pessimism
The Treasury has pushed back, noting that the CBI’s latest growth forecast is less negative than in previous months.
A spokesperson highlighted that several major institutions, including the Office for Budget Responsibility, the Bank of England, the IMF, and the OECD, have all upgraded their growth forecasts for the UK.
According to the government, ongoing regulatory reforms and the Chancellor’s upcoming Budget are designed to cut costs, unlock billions in protected investment, support start-ups, and help lower inflation, which could eventually pave the way for interest rate cuts and improved business confidence.
What’s next?
The coming months will be crucial.
Businesses are watching closely to see whether government promises translate into lower costs and clearer rules, or whether inflation and weak demand continue to dominate.
For now, confidence remains on a knife edge, and the direction of the UK economy in 2026 is still very much up for debate.
Share on Facebook «||» Share on Twitter «||» Share on Reddit «||» Share on LinkedIn