UK firms face sharpest drop in output in eight years as Brexit bites

Sajid Shaikh
Digital finance editor

A Union flag flies from a pole as construction cranes stand near skyscrapers in the City of London. Photo: Tolga Akmen/AFP/Getty Images

Private companies in the UK are heading for their sharpest fall in economic output in eight years, new figures suggest.

Data shows businesses hurting across the UK economy from retail to manufacturing to professional services, with Brexit uncertainty continuing to hit business sentiment ahead of the general election.

Private sector activity will shrink by 17% over the three months to January next year, according to Confederation of British Industry’s (CBI) latest monthly growth indicator.

New figures, based on surveys of private companies in Britain, show private sector output also sank in the three months to October by 11%, a sharper decline than the previous quarter.

The latest decline marks the 12th consecutive quarter of flat or falling volumes, the CBI said on Sunday.

It comes after a leading index warned on Friday UK manufacturers could be heading towards a recession.

Figures from IHS Markit/CIPS UK manufacturing purchasing managers' index (PMI) showed factories’ output shrinking month on month.

Its headline figure in October came in at 49.6, showing manufacturing sector contracting as it fell below the growth benchmark of 50 and marking a decline for a sixth month in a row.

In September, the UK’s service sector – which includes restaurants, hotels and finance and accounts for about 80% of the economy – also shrank. It saw sliding sales, job losses, cancelled and postponed projects and weak investment levels, according to an IHS Markit/Cips survey for the month.

The deterioration in private firms’ activity in the latest CBI survey reflects a sharp decline in manufacturing output and consumer services business volumes, coupled with a further drop in retail sales and business, and professional services volumes. Retail sales are expected to stabilise, however.

READ MORE: UK manufacturing still suffering despite Brexit stockpiling boom

“The drops across the manufacturing, retail and dominant services sector, paired with the hugely damaging effect of Brexit uncertainty, are ingredients for a perfect storm for British firms,” warned Anna Leach, CBI’s deputy chief economist.

“The squeeze on the private sector continues to tighten, with our growth indicator showing that volumes have been flat or falling for a full year. And with expectations for activity at their lowest in nearly eight years, it’s clear businesses are worried about the future.”

Across the economy more broadly, growth has been volatile during 2019, driven by shifting activity in response to moving Brexit deadlines.

The CBI expects the economy to grow modestly in the event of a smooth transition to a new Brexit deal, with the longer-term economic impact dependent upon the details within the final deal.

“The general election is an opportunity for all parties to present their visions for the UK’s future. Passing a good deal with the EU is the first step. Then the real heavy lifting can begin, building a future relationship with our biggest trading partner.

“Ending political instability will enable a renewed focus on domestic priorities, which will give the economy the boost it needs,” Leach said.

Since the Brexit referendum the UK economy has grown at an ever slower rate, dropping from above 2% three years ago to a predicted 1.2% this year.

READ MORE: Boris Johnson's Brexit deal to wipe £70bn off economy by 2029