A closely watched survey from the Confederation of British Industry (CBI) has revealed that UK firms are turning more cautious about their growth prospects for the coming months. The CBI's measure of expected output over the next three months fell to -28 from -24, marking the weakest reading since December 2025. This decline signals that businesses are bracing for a slowdown, even as other data points to a still-active labor market.
The survey, reported by Reuters, also showed that the CBI's measure of output over the past three months slipped, and the group noted that service-sector volumes fell sharply. This echoes other recent signs that the UK's largest economic sector is losing momentum. The services sector, which includes everything from retail to finance, is a key driver of the UK economy, and a sustained slowdown there could weigh on broader growth.
Labor Market Shows Mixed Signals
At the same time, job-search platform Adzuna reported that vacancies rose for a fourth consecutive month, suggesting that employers are still looking to hire. However, the platform also found that advertised salaries dipped 0.2% from the prior month, and graduate salaries fell 42% from a year earlier—its largest drop on record. This combination of rising vacancies and cooling pay is unusual and points to a nuanced labor market.
This pattern can occur when demand expectations roll over before hiring plans do. Firms often engage in "labor hoarding" during a slowdown—holding onto staff and keeping some roles open—while they wait to see whether the weakness is temporary. If they still need to protect profit margins, pay becomes the easier lever to adjust. This can mean slower wage increases, tighter salary bands, and tougher offers for entry-level hires.
What It Means for Investors
For everyday investors, the key takeaway is that a weaker outlook can hit pay before it hits vacancy counts. Vacancy totals can look fine even when employers turn more pessimistic, because staffing decisions usually lag changes in orders. So a weaker CBI outlook doesn't have to mean immediate layoffs, but it can mean less generous pay-setting.
In practice, this shows up as narrower advertised salary ranges, fewer roles offering big jumps for switching jobs, and less room to negotiate. Adzuna's mix of rising vacancies and a monthly dip in advertised pay fits that pattern, and the steep fall in graduate salaries suggests new entrants are feeling it first. For households, softer offers matter because wage growth is what eventually feeds into spending power. If pay cools while prices stay elevated, day-to-day budgets can feel tighter even without a clear deterioration in headline employment data.
This dynamic is reminiscent of trends seen in other economies. For instance, Canada's wage growth has failed to convince some economists as labor slack points to potential rate cuts. Similarly, the UK's cooling pay signals could influence the Bank of England's thinking on interest rates, as policymakers weigh the risk of a slowing economy against still-elevated inflation.
Broader Economic Context
The CBI survey adds to a growing body of evidence that the UK economy is losing steam. The services sector, which accounts for around 80% of UK economic output, has been a particular concern. The CBI's finding that service-sector volumes fell sharply aligns with other indicators, such as weaker consumer confidence and subdued retail sales.
Meanwhile, the labor market remains a bright spot, but the softening in pay suggests that the resilience may be fragile. Investors should watch for further data on wage growth and employment, as these will be key to understanding whether the economy is heading for a mild slowdown or something more serious.
For those with exposure to UK equities, the cautious outlook from businesses could weigh on corporate earnings, particularly in sectors like consumer services and retail. However, the labor hoarding trend means that a sharp rise in unemployment is not yet on the cards, which could provide some support for consumer spending.
In the broader context of global markets, the UK's cautious tone is not unique. Other economies, such as South Korea and Singapore, are also showing mixed signals, with export-driven growth masking domestic weakness. For investors, this underscores the importance of diversification and focusing on companies with strong pricing power and resilient demand.
In summary, the CBI survey and Adzuna data paint a picture of a UK economy that is slowing but not collapsing. The key risk for investors is that softer pay growth could eventually weigh on consumer spending, which is a major driver of economic activity. For now, the labor market remains a source of strength, but the trend is worth watching closely.
