Rachel Reeves has been dealt a fresh blow as business leaders’ expectations for growth have taken a “decisive turn for the worst”.
According to the Confederation of British Industry’s (CBI) latest Growth Indicator, the private sector expects activity to fall in the three months to February. This is the first time this year that expectations for growth have been negative.
Alpesh Paleja, the CBI’s Interim Deputy Chief Economist, said: “As we head into 2025, expectations for growth have taken a decisive turn for the worse. Our surveys suggest anticipated activity was already weakening heading into the October Budget and the Chancellor’s announcements have left businesses with even more tough choices to make.”
Mr Paleja described it as concerning news that firms plan to reduce headcount, with hiring intentions at their weakest since the tail-end of the COVID-19 pandemic.
He said: “This could be an early sign of the impact of higher labour costs from the upcoming rise in employer NICs (National Insurance Contributions), and the uprating in the National Living Wage.”
According to the CBI, business volumes in the services sector are anticipated to decline, with a slight fall in business and professional services and a sharper decline in consumer services. Both marks the weakest expectations for about two years.
Tony Redondo, founder of Cosmos Currency Exchange, told Express.co.uk, “Confidence has been sapped in countless sectors of the economy, and this is shown in the CBI’s latest report. Nothing could have prepared us for the brutal anti-business Budget announced on 30 October by Rachel Reeves.
“We’ve seen a 35% increase in business clients shelving their expansion plans, be it premises, capital equipment or staffing. Roughly 25% of them are seriously looking to relocate overseas.”
The CBI’s latest indicator comes a day after the Institute of Directors revealed business optimism had fallen close to a record low. Its Economic Confidence Index, which measures business leader optimism in the economy’s prospects, fell to -65 in November from -52 in October.
This brings business confidence in the wider economy close to the record low recorded in April 2020 (-69) at the onset of the COVID-19 pandemic. It also marks the second-lowest reading of the Index since it began in July 2016.
Ms Reeves was forced to defend her economic plans last week as she faced claims the Government is treating business as a “cash cow”.
To reassure firms she wouldn’t repeat her tax raid, Ms Reeves told the CBI’s annual conference that the Budget had “wiped the slate clean” and public services would now have to live within their means.
She said: “I’m not immune to the challenges that businesses face, including the challenges from higher taxes. But the alternative was instability hanging over us for another year.”
Ms Reeves told bosses at the conference: “I’ve had lots of feedback on the Budget, but what I haven’t heard is any credible alternative to what I did to put our public finances on a firm footing.”
Mr Paleja said on Monday (December 2): “Firms are looking to [the] Government to take a lead in helping generate positive momentum for the economy.
“That means moving quickly and decisively to reform business rates, deliver apprenticeship levy flexibility, and boost occupational health incentives to support the health of the workforce.”
Prime Minister Sir Keir Starmer is to unveil fresh targets for his Government this week in another reset. During this reset, he is tipped to “sideline” a flagship pledge to make Britain the fastest-growing economy in the G7.
As part of a “plan for change”, the PM will outline changes to his economic goals to improve Brits’ living standards.
Riz Malik, Independent Financial Advisor at R3 Wealth, told Express.co.uk: “An economy can only grow if businesses grow and Rachel Reeves has created an environment where this is harder than ever.
“Businesses will reign in investment as their costs increase just to stand still. Even Santa is seeking tax advice because she will probably go after him next.”
Rakesh Dua, CEO of the SME accountants, Rakesh Dua, said: “This data from the CBI is unsurprising. The Budget hampered growth and, just as importantly, took a sledgehammer to the sentiment and motivation of entrepreneurs.
“Many business owners are now asking themselves, why take the risk when the cards are stacked against us so much? Our economy needs growth not the financial burden it currently has.”
HM Treasury has been approached for comment.