UK private sector firms expect activity to fall for the rest of 2026, extending a run of negative growth predictions that has persisted since late 2024, according to the Confederation of British Industry's latest growth indicator.

The survey of almost 700 firms recorded a weighted balance of -14% for the three months to December — the percentage of companies expecting an increase minus those expecting a decrease. For HR leaders, the more immediate signal sits in the September data: hiring intentions remained negative for the third consecutive month, with headcount expected to fall quickly in consumer services and distribution, decline slightly in business and professional services, and stay broadly flat in manufacturing.

The weakness is broad but uneven. Distribution firms report the bleakest expectations, at -34%, followed by consumer services at -12% and business and professional services at -10%. Manufacturing output is also expected to decline, at -6%, but that figure marks the least pessimistic reading for the sector since March. Overall, expectations are less negative than earlier in the year.

The forward-looking numbers follow an actual contraction. Private sector activity fell in the three months to September, at -19%, with the decline concentrated in services and distribution and manufacturing output down only very slightly.

Cost pressures hit margins, recruitment and investment

Alpesh Paleja, deputy chief economist at the CBI, said the outlook for growth remains subdued and the picture is mixed across sectors, "particularly with some signs of resilience and even mild improvement in parts of manufacturing and professional services."

"But these are far outweighed by challenges weighing on conditions for all businesses. Cost pressures remain strong, especially around energy and employment and, coupled with weak demand, this continues to put pressure on margins, recruitment and investment plans," Paleja said.

The pressures are compounding as firms wait for the Budget on 28 October. Paleja said uncertainty in the run-up to the fiscal statement is already affecting business decisions. "Against the backdrop of renewed fiscal pressures, the Budget must draw a clear red line under any more rises in the cost of hiring, investing and doing business," he said.

He called on the chancellor to ease the cumulative cost burden as an entry point to spurring dynamism, naming three specific measures: removing legacy policy costs from businesses' electricity bills, exploring options to reduce employer national insurance contributions, and committing to a clear path for business rates reform. Those steps, he argued, would "build business confidence and put the country back on a path to sustained growth."

What this means for people teams

The sector split matters for workforce planning. Consumer services and distribution employers — retail, hospitality and logistics among them — face the sharpest expected headcount reductions, which points to continued restraint on replacement hiring and heavier scrutiny of labour costs in those industries. Business and professional services firms anticipate only a small decline, suggesting selective rather than broad-based cuts.

Employment costs sit at the centre of the CBI's policy asks, with employer national insurance contributions singled out as a target for relief. Any movement on that front in the 28 October Budget would directly alter the cost base for every UK employer with payroll.

The survey's trajectory — still negative, but less so than earlier in 2026 — suggests the pressure on recruitment budgets may ease gradually rather than reverse. Paleja's framing of the Budget as a "red line" moment indicates business groups will push hard for hiring-cost relief; whether the chancellor delivers it will shape workforce planning well into 2027.