UK Private Sector Sounds the Alarm Over Tax Hikes and Energy Costs

The UK economy remains locked in a chokehold of persistent cost pressures and dwindling business confidence, with the private sector bracing for a continued downturn through Q3.

According to the latest Growth Indicator from the Confederation of British Industry (CBI), British firms across major sectors expect overall activity to decline in the three months leading to September. This extends a prolonged streak of economic pessimism that took root in late 2024, sparked by a wave of controversial policy shifts including hiked National Insurance contributions, aggressive minimum wage increases, and sweeping reforms to workers’ rights.

Key Takeaways: The Current Landscape

• Broad-Based Decline: Private sector activity plunged by 34% in the three months to June, with every single sub-sector reporting a drop in output.
• Q3 Outlook Bleak: Significant contractions are anticipated across distribution, manufacturing, and professional services, with the manufacturing outlook worsening sharply compared to previous months.
• Labor Market Cools: Headcounts are expected to shrink through September, particularly within consumer and professional services. The CBI projects UK unemployment to climb to 5.5% this year, pushing the jobless total to roughly 2 million.

“Weak demand, fragile confidence, and persistent cost pressures still dominate the business landscape.” — Alpesh Paleja, CBI Deputy Chief Economist

Political Uncertainty Adds Fuel to the Fire

The ongoing economic stagnation coincides with deepening political anxieties in Westminster. As Andy Burnham prepares to step in as the next Prime Minister, industry leaders are fearful of a potential lurch to the Left, which could invite further regulatory burdens.

Compounding these worries, recent monthly business surveys indicate that the UK private sector is currently on track to shrink for two consecutive months.

A Silver Lining for Inflation?

While growth remains elusive, there is mild relief on the pricing front. Inflation expectations across the services sector have hit their lowest levels since November 2025. Consumer services reported their least pessimistic volume expectations since August 2024, though selling price expectations in that niche remain elevated compared to historical norms.

The CBI’s Directive for the Next Prime Minister

With the UK economy sitting on shaky ground, the CBI is urging the incoming administration to move past political distractions and prioritize immediate, growth-stabilizing policies.

To restore business confidence and unlock frozen private investment, the CBI has outlined three critical priorities for the next PM:

1. Publish the Defence Investment Plan: Providing long-term clarity for the defense and manufacturing supply chains.
2. Slash Industrial Energy Costs: Relieving pressure on energy-intensive British factories and enterprises.
3. Repair EU Trade Relations: Strengthening the UK’s trading ties with the European Union to streamline supply chains.

“Businesses are looking for certainty, not delay,” Paleja emphasized, noting that policymakers must keep the economy front and center amid shifting political sands.

Source Notice: This article was adapted from financial data and market reporting originally published by This is Money (the financial section of the Daily Mail group), based on the official business survey metrics released by the Confederation of British Industry (CBI).