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British businesses brace for fresh downturn amid rising costs and tax burdens

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January 27, 2025
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British businesses brace for fresh downturn amid rising costs and tax burdens
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British companies fear a “significant fall” in their trading prospects over the next few months, raising concerns about further job losses and derailing Labour’s ambitions to reboot economic growth.

A survey by the CBI found that a net 22 per cent of private sector firms expect their output to drop between now and April, matching the downbeat sentiment recorded in December — the most pessimistic reading in more than two years. Activity has been flat or falling since mid-2022.

Alpesh Paleja, interim deputy chief economist at the CBI, said: “After a grim lead-up to Christmas, the new year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity. Anecdotes suggest that companies are being hit by lacklustre demand and caution among consumers, while also continuing to adjust to measures announced in the budget.”

The relationship between government and industry has been under strain since last October’s budget, which introduced higher national insurance contributions for employers. Official figures last week showed that staff numbers are being cut at one of the fastest rates since the 2009 financial crisis.

Analysts say that companies are likely to raise prices again this year while jobs are at risk, especially in the business services and consumer-facing sectors. Separate studies echo the CBI’s findings, with consumer confidence hitting its lowest level in a year and businesses recording a two-year low for optimism.

Despite Labour’s pledge to “kick start the economy” and boost growth, Rachel Reeves, the chancellor, is under mounting pressure from industry as taxes on employers are poised to rise in April. Baroness Neville-Rolfe, the shadow Treasury minister, has warned that Reeves needs to “restore some of her lost credit” with businesses, saying: “The chancellor is courting trouble” with the higher national insurance policy.

The CBI said negativity is “widely shared” across manufacturers, distributors, and professional services. “There is an urgent need to get momentum back into the economy,” Paleja added, urging the government to reform business rates, adjust the apprenticeship levy, and expand occupational health to keep more people in work and support growth.

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British businesses brace for fresh downturn amid rising costs and tax burdens

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