The Confederation of British Industry has issued a stark warning to the government, stating that British businesses are not equipped to withstand a further year of economic stagnation. This alert comes as fresh data indicates a grim beginning to 2026 for the national economy.
A 'Disappointing Year' and Dismal Prospects
In its latest survey, the CBI described 2025 as a 'disappointing year' for private sector growth and urged the Labour administration to prioritise delivering economic expansion. The report found that despite the November Budget providing some clarity after months of uncertainty, the outlook for companies remains bleak.
Firms reported a 'broad-based' downturn affecting multiple sectors of the economy. Alpesh Paleja, the CBI's deputy chief economist, stated that businesses continued to face the same headwinds that have troubled them for the past twelve months. These include weak consumer demand, with households remaining cautious about spending, alongside intense cost pressures that are squeezing profit margins.
Mr Paleja also highlighted that uncertainty in the run-up to the Autumn Budget had stalled critical spending decisions and major projects, effectively clogging pipelines of future work. He emphasised the urgent need for action, declaring: 'Business can't face another year of stasis, and will be looking for the Government to expedite delivery in 2026.'
Extending a Run of Economic Gloom
The CBI's Growth Indicator showed that economic activity contracted in the three months leading to December 2025, and a further decline is anticipated in the first quarter of 2026. This extends a prolonged period of poor sentiment that began with Chancellor Rachel Reeves's first Budget in October 2024.
That Budget delivered a significant blow to businesses through a £25 billion increase in employer National Insurance contributions. Companies are also grappling with substantial rises in the National Living Wage, a poorly executed reform of business rates, and new workers' rights legislation, all of which are adding to operational costs.
Broader Economic Indicators Paint a Grim Picture
The CBI's findings add to a series of recent negative economic signals. Official figures show that Gross Domestic Product (GDP) has been shrinking, contradicting the government's stated top priority of achieving growth. Simultaneously, unemployment has risen to 5.1 per cent, marking the highest rate in nearly five years.
Inflation, while having fallen from its peak, remains stubbornly high at 3.2 per cent, significantly above the Bank of England's 2 per cent target. Furthermore, retail sales data revealed a decline for two consecutive months in October and November. Analysts suggest the weakness on the high street likely persisted through December and is expected to drag into the new year, underscoring the severe challenges facing the UK economy.
