Yahoo Finance Cost of living squeeze hits UK private firms as growth slumps
The impact of the cost of living crisis has extended to Britain's private sector as companies reported a "sharp decline" in growth amid the tightest squeeze on households.
Analysis from the Confederation of British Industry (CBI) showed growth slowed sharply in the three months to June from 23% to 5%, the slowest rise in activity since April 2021.
The CBI said weaker demand was having a knock-on effect on business activity as high inflation squeezes household incomes and purchasing power.
In the UK, inflation hit a fresh 40-year high of 9.1% in May, driven by higher fuel and food prices, and the energy price cap jump. Meanwhile consumer confidence slid to its lowest level in nearly 50 years.
While the slowdown was broad-based across all sectors, consumer services saw the biggest hit, falling by 41%, marking the sharpest fall experienced by the sector since February 2021, it said.
Growth also fell across business & professional services (+10%) and distribution (+9%). The former was the weakest increase in activity in four months, and the latter the weakest since April 2021.
Read more: UK consumer confidence sinks to new record low amid economic fears
According to the latest Growth Indicator, the only sector to see an increase in output was manufacturing, up to 25%, although growth eased on the 10-month high seen in May (30%).
Looking ahead, activity in the private sector is forecast to be broadly flat in the next three months, dipping 3%. That is the weakest forward-looking expectations since February 2021, the CBI said.
Consumer services volumes are set for another tough quarter (-43%), while business & professional services is predicted to stagnate (+2%) and distribution sales are expected to fall (-7%).
Manufacturing output is anticipated to continue growing solidly (+20%), albeit at a slower pace than in the last quarter.
Read more: UK inflation hits fresh 40-year high of 9.1%
Alpesh Paleja, lead economist at CBI, said: "With the post-pandemic recovery severely challenged by continually strong cost pressures, private sector activity is grinding to a halt. Firms across all sectors are being hit, but consumer-facing companies are faring worst, as consumers face the worst cost of living crunch in decades.
"With household spending hit, rapid action needs to be taken to boost business investment and stave off the worrying spectre of recession. Policies like introducing a permanent successor to the super-deduction could help bolster confidence and catalyse vital capital spending.
"Longer-term, we need to look at post-Brexit regulatory reforms to support growth, innovation and sustainability, while enhancing UK competitiveness. Government and business also need to be better prepared to look globally for new avenues of growth, while demand falters at home."
