Pressure is piling up on Chancellor Rachel Reeves amid more evidence that her October Budget is behind a sharp fall in business activity.

Expectations for growth in the first quarter are at their lowest in more than two years, says the CBI, as concern grows that the new year could see the economy slide back into recession.

Its warning came as revised data this morning shows the UK economy showed 0% growth between July and September, down from its first estimate of a 0.1% expansion.

The Office for National Statistics said the economy was weaker than it had initially estimated due to weaker contributions from bars and restaurants, legal firms and advertising. The Bank of England recently warned that the Budget will lead to lower growth.

Chancellor  Rachel Reeves said: “The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge. 

“But this is only fuelling our fire to deliver for working people. The Budget and our Plan for Change will deliver sustainable long-term growth, putting more money in people’s pockets through increased investment and relentless reform.” 

The CBI’s latest Growth Indicator shows pessimism across all sectors and follows a fall in private sector activity in the three months to December. Activity has been flat or falling since August 2022.  

Alpesh Paleja, CBI interim deputy chief economist, said:  “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.

“Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.

“As we head into 2025, firms are looking to the government to boost confidence and to give them a reason to invest, whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates.”

A further downbeat message comes from the British Retail Consortium which says a squeeze on spending by consumers in December will continue into Janauary.

BRC chief executive Helen Dickinson said public confidence in the state of the economy has nosedived and retailers “could find themselves facing a New Year spending squeeze just as they unveil their January sales.

“The weak spending intentions could pave the way for a challenging year for retailers, who face being buffeted by low consumer demand and £7bn of new costs from the Budget set to hit the industry in 2025.

“With sales growth unable to keep pace, retailers will have no choice but to raise prices or cut costs – closing stores and freezing recruitment.

“To mitigate the impact this will have on growth, Government must ensure that its proposed business rates reform does not result in any shops paying higher rates than they already do.”

Retailers reported a moderate fall in year-on-year sales volumes for December, according to CBI Distributive Trades Survey published on Friday. This marked the third month in a row in which annual sales declined.