Private sector to shrink at fastest pace since pandemic

Chancellor’s autumn tax raid has contributed to ‘negative sentiment’ about Britain’s economy

30 July 2025 Daily Telegraph 

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British business activity is expected to shrink at its fastest pace since the depths of the pandemic in 2020 amid growing pessimism since Labour took power.

Economists warned the “negative sentiment” had no end in sight, with activity across “all parts” of the British economy expected to keep shrinking over the next three months, according to the Confederation of British Industry (CBI).

Its latest barometer of private sector output showed businesses were still reeling from the impact of Rachel Reeves’s autumn tax raid, with consumer-facing sectors hit hardest by the £25bn increase in employers’ National Insurance.

The response to the CBI’s business barometer was the most negative since October 2020, when Boris Johnson, the former prime minister announced the second national lockdown during the pandemic.

Bosses were also wary about the impact of global trade policy, even though the UK has escaped with one of the lowest additional tariffs from Donald Trump among major advanced economies.

“The outlook remains negative across the board,” the CBI said, as it warned of a toxic mix of slower growth and higher prices.

“Our surveys also suggest that headcount will be cut further in the three months to October, marking almost a year of weak hiring intentions,” it said.

The decline in July means more businesses have reported a slump in output than an expansion since Labour won the general election in July last year. Expectations about future output have also dragged into negative territory since Ms Reeves’s tax raid.

Alpesh Paleja, the CBI’s deputy chief economist, said: “Firms continue to face testing conditions, with expectations pointing to another quarter of falling activity across the economy.

“While not worsening, the persistently negative outlook underlines the fragility of demand conditions.

“Against this backdrop, businesses continue to cite headwinds from adjusting to higher employment costs, energy prices and continued uncertainty from a volatile global environment. With few signs of recovery on the horizon, firms are focused on managing costs and streamlining processes in what looks set to be a subdued second half of the year.”

It came as separate figures showed British households squirrelled away £8.8bn into banks, building societies and National Savings and Investment accounts amid signs that consumers remain cautious.

The Bank of England said households’ total liquid assets increased by £8.8bn in June, which was almost double the increase recorded in May and the £4.5bn average month-to-month increase in the two years before the pandemic.

“This suggests households are in the mood to save rather than spend,” said Ashley Webb at Capital Economics, adding that this “casts a bit more doubt over [stronger] consumer spending growth” to support the economy.