Boost in private sector growth will be short-lived, CBI warns
There was a notable rise in the number of firms reporting higher output in the final months of 2017.
Growth across Britain’s private sector picked up in the final months of the year, but businesses are expected to suffer a slowdown at the start of 2018.
A survey of manufacturing, service and distribution sector firms by the Confederation of British Industry (CBI) showed a notable rise in the number of businesses reporting higher output over the three months to December, at a balance of 19%
That is compared with a balance of 6% for the three months to November.
The CBI survey – which gathered views from 642 respondents – said growth over the period was “broad-based”, with participants in all sectors reporting “robust” output volume growth at a pace that was above their long-run averages.
Total order books in the manufacturing sector were among the strongest since August 1988, while the distribution sector reported accelerated growth in wholesale.
Services benefited from a pick-up in the professional and business services industry after three months of no growth, as well as a recovery in consumer services volumes following a sharp drop in the three months to November.
But the CBI said all three sectors are unlikely to keep up the pace into 2018.
Private sector growth is expected to return to a “more moribund pace” over the coming three months, with just a balance of 4% of firms forecasting higher output.
Anna Leach, head of economic intelligence at the CBI, said: “Private sector firms are enjoying healthy activity levels as we approach the year end, but mediocre expectations for growth underline the ongoing challenges facing companies.
“Persistent cost pressures will ensure that inflation remains at a high level, perpetuating the squeeze on household spending, particularly impacting consumer-facing firms and retailers.”
Over the next quarter, distribution sector growth is set to slow due in part to lower expectations for wholesaling, which helped drive pick-up at the end of 2017.
The manufacturing sector is also forecasting a slowdown, while volumes from the services sector is expected to be flat due to unchanged volumes in business and professional services and a small decline in consumer services.
Despite the deceleration, the CBI has left its economic forecast “broadly unchanged”.
The business organisation is expecting the UK’s quarterly economic growth to “remain subdued” at an average of 0.3% – which is about half the average rate experienced since 2013.
However, that forecast assumes the UK is able to strike a Brexit transition agreement with the EU sometime within the first quarter of 2018 that would help the country adapt to a new relationship with the bloc.