By Suban Abdulla
LONDON (Reuters) -British firms expect output to slide over the next three months, in their gloomiest outlook since September 2022, as the implications of U.S. tariffs and higher payroll taxes weigh on the private sector, an industry survey showed on Monday.
The Confederation of British Industry said the output expectations gauge of its surveys of the services sector, manufacturers and retailers fell to a net balance of -30 in May, down from -21 in April.
Private sector activity fell in the three months to May to -26, down from -19 a month earlier.
“Firms highlight numerous headwinds: the continued impact of higher employer National Insurance Contributions and the National Living Wage hike on their costs and operations, (and) further uncertainty from developments in the global trade landscape, compounded by a general sense of weak demand at home,” Alpesh Paleja, deputy chief economist at the CBI, said.
Firms expected to cut hiring over the next three months to meet cost pressures, the CBI said, including a 25 billion pound ($34 billion) increase in social security contributions announced by finance minister Rachel Reeves last October and a nearly 7% uplift in the minimum wage.
The CBI survey contrasts with the trend in a poll from the Institute of Directors published on Sunday which showed confidence amongst business leaders about the UK economy jumped to its highest since August 2024, although it remained negative.
Britain’s economy grew more strongly than expected in the first three months of 2025, but the Bank of England said it expects a modest hit to growth from U.S. President Donald Trump’s tariffs.
Reeves is set to deliver her first multi-year spending review on June 11 which will set budgets for public services through to 2029.
Anna Leach, chief economist at the IoD, urged Reeves to avoid any new spending commitments that might require further tax rises and said it was “concerning see UK government borrowing costs rising amidst building pressure to unwind attempts to moderate public sector spending”.
The CBI data was based on a survey of 650 companies between April 25 and May 14 and the IoD surveyed 483 generally small firms between May 15 and May 28.
($1 = 0.7422 pounds)
(Reporting by Suban Abdulla; editing by David Milliken)
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