UK businesses are bracing for a decline in output over the next three months, marking their most pessimistic outlook since September 2022, according to a new report from the

Confederation of British Industry (CBI).

The CBI’s May survey revealed that expectations for private sector output dropped sharply, with a net balance of -30 compared to -21 in April. Actual private sector activity also weakened, falling to -26 in the three months to May, down from -19 the previous month.

Firms cited a range of challenges, including higher labour costs due to increased National Insurance Contributions and the recent hike in the National Living Wage, along with rising uncertainty over global trade—particularly new U.S. tariffs.

“These headwinds are creating significant cost pressures and dampening demand,” said Alpesh Paleja, CBI’s deputy chief economist. “As a result, businesses plan to scale back hiring in the coming months.”

Key cost pressures include the £25 billion rise in social security contributions announced by Finance Minister Rachel Reeves last October and a nearly 7% increase in the minimum wage.

The CBI’s downbeat findings contrast with a separate survey by the Institute of Directors (IoD), which showed that business leader confidence in the UK economy had reached its highest level since August 2024—though it still remained in negative territory.

While the UK economy outperformed expectations in early 2025, the Bank of England has warned that new U.S. tariffs could weigh on future growth.

Finance Minister Reeves is set to unveil her first multi-year spending plan on June 11, outlining public service budgets through 2029. The IoD’s chief economist, Anna Leach, urged caution, warning against new commitments that could lead to further tax increases.

The CBI’s findings are based on responses from 650 firms surveyed between April 25 and May 14, while the IoD’s poll included 483 mostly small businesses surveyed from May 15 to 28. Photo by Phil Whitehouse, Wikimedia commons.