Private sector volumes fall again but growth expected in quarter ahead

Private sector volumes fall again but growth expected in quarter ahead

Private sector activity fell again in the three months to January, albeit as a slower pace than the preceding quarter (-16% from -20%), according to the CBI’s latest monthly Growth Indicator.

The composite measure, based on 663 respondents, shows that business volumes across the private sector have failed to register any growth for over a year now. Both consumer services (-5% from -19%) and business & professional services (-14% from -21%) saw the pace of decline slow on the previous rolling-quarter, while manufacturing activity fell at broadly the same pace (-15% from -16%). The survey also recorded the lowest balance ever for the retail sector (-55% from -45%). This, along with a sharp fall in motor trades volumes, drove the sharpest fall in overall distribution volumes since August 2008 (-30% from -22%).

Looking ahead, however, expectations for the coming quarter have improved markedly. Private sector is activity expected to grow at an above-average pace in the quarter to April (+12%), representing the largest divergence between reported and expected balances since the start of the composite data in October 2003. Each of the three major sectors expect a return to growth in the quarter ahead (although within the distribution sector, retail volumes are expected to decline further).

According to the CBI’s December economic forecast, UK economic growth looks set to improve gradually from 2020, on the assumption that Brexit uncertainty gradually lifts and global growth revives. GDP is forecast to grow by 1.2% in 2020 (after estimated growth of 1.3% in 2019), with a somewhat brighter outlook for 2021, when growth is forecast to pick up to 1.8%. For more detail, see our December economic forecast.

Rain Newton-Smith, CBI Chief Economist, said:

“It’s great to see business confidence improve but it remains to be seen whether this will feed through to activity. While firms in many sectors are expecting a return to growth over the coming quarter, the tough times faced by retailers look set to continue.

“With the General Election delivering a stable majority and the Withdrawal Agreement now secured, the Government must work quickly to establish a future relationship with the EU that can deliver prosperity across the whole economy, as well as re-focusing its attention on important domestic priorities.”

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