UK companies will reduce staffing in what is predicted to be “another significant fall in activity over the next three months”, the Confederation of British Industry (CBI) said on Monday.
According to the CBI's latest Growth Indicator, private sector activity fell by 23 per cent in the three months to January, a similar pace to the decline in the three months to December.
Activity has been flat or falling since August 2022. The Growth Indicator is an amalgamation of the CBI's surveys in the services, retail and industrial sectors, and it concluded that “pessimism was widespread”.
“There is an urgent need to get momentum back into the economy,” said the CBI's interim deputy chief economist, Alpesh Paleja. “The government can help shift the UK’s economic narrative with more determined focus on measures that could drive growth.
“With forecasts of underwhelming growth this year and less headroom for business investment, the way forward lies in the government and firms working together to deliver on their growth plan to restore confidence and get the economy firing on all cylinders."
The CBI said the business mood was “cautious”, with much of the pessimism being blamed on the rise in the employers' national insurance contributions (NICs) announced in last year's Budget which is about to increase company payrolls. The CBI's said its recent surveys suggest companies will be looking to cut staff levels in the three months to April, following a sharp drop in hiring intentions in the previous three months.
“But even before this, employment plans had already begun to cool in the third quarter of last year, and CBI members have reported that the rise in employer NICs is causing them to reduce headcount or move jobs overseas,” the CBI said.
As the rate of inflation in the UK remains above the Bank of England's 2 per cent target, UK companies surveyed by the CBI expect selling prices to rise over the next three months.
“Selling price inflation expectations have picked up across the private sector, but particularly sharply in business and professional services, where predictions for price rises are the strongest since April 2023,” the CBI said.
Profit warnings
Meanwhile, a separate report by EY-Parthenon said one in five UK-listed companies issued a profit warning in 2024, a situation that was only worse during the Covid pandemic and in the aftermath of the bursting of the dotcom bubble in the early 2000s.
According to the report, 274 profit warnings were made by UK-listed companies last year. But the situation is improving, albeit at a very slow pace. In the final quarter of last year, 71 listed companies issued profit warnings, an 8 per cent decrease on the number in the same period in 2023.
For the most part, the warnings were caused by supply issues and higher costs. The largest number of profit warnings were issued by business services providers, recruitment companies and software firms. Retailers and other consumer-facing companies were close behind.
In the past 12 months, 38 per cent of UK-listed retailers have issued profit warnings, according to EY-Parthenon. In addition, EY-Parthenon calculated that on the day they issued profit warnings, share prices of the companies fell by an average of about 12 per cent.
“The pace of profit warnings has eased slightly in early 2025, but the road ahead is still rocky and further earnings challenges clearly lie ahead – some known, but with many scenarios still possible in trade, geopolitics, interest rates, and beyond,” said Jo Robinson, partner at EY-Parthenon. “The economic outlook might improve, but it will still feel like an uphill battle for many companies.”
