UK Economy Shows Resilience but Weak Demand Persists, CBI Warns

The Confederation of British Industry’s latest economic briefing flags modest productivity gains and renewed bond market turbulence as Kent businesses face higher energy costs and fragile demand.

Labour productivity — measured as output per hour — was around 2.1 per cent higher in the first quarter of 2026 than a year earlier, according to Office for National Statistics flash estimates using administrative data. That’s a marked turnaround from Quarter 4 2025, when the same measure sat roughly 0.5 per cent below the previous year. The CBI’s Deputy Chief Economist Alpesh Paleja examines what’s behind these shifts — and what they mean for businesses — in the organisation’s latest “Economy in Brief” note.

The picture is more mixed when measured differently. Labour Force Survey-based estimates put output per hour just 0.4 per cent higher year-on-year in Quarter 1 2026, while output per worker actually fell 0.1 per cent compared with the same quarter in 2025. By Quarter 2 2026, administrative data showed output per hour up around 0.7 per cent year-on-year and output per worker up 1.4 per cent — yet the survey-based measure for output per hour slipped 0.2 per cent below Quarter 2 2025. The figures show that any productivity improvement is gradual and partly depends on which method you use.

Bond market volatility is the other pressure the CBI briefing flags. The organisation links recent turbulence in global government bond markets to geopolitical developments in the Middle East and shifting expectations about interest rates — though precise yield movements aren’t confirmed in the available data. For Kent, that matters directly: Kent County Council’s capital borrowing costs, housing developers’ financing and business loans are all sensitive to movements in gilt yields. The county’s role as a gateway to Europe through Dover and the Channel Tunnel also means global trade conditions feed quickly into local economic activity.

Weak demand is the daily reality for many Kent firms, even if headline GDP held up. UK GDP grew around 0.1 per cent quarter-on-quarter in Quarter 4 2025, bringing full-year 2025 growth to roughly 1.3 per cent — modest, but not a recession. CPI inflation stood at around 3.0 per cent in January 2026, with average earnings growing around 4.2 per cent year-on-year in December 2025 and the Bank Rate sitting at around 3.75 per cent in February 2026. But the CBI’s own surveys describe persistently weak demand and mounting cost pressures — chiefly from energy prices — squeezing business sentiment even as the top-line numbers hold.

So resilience at the national level doesn’t tell the whole story for Kent’s energy-intensive manufacturers, logistics operators and port-dependent businesses, all of whom face the same cost squeeze the CBI describes. The CBI forecasts a more challenging second half of 2026, with potential impact on investment and local property markets.