UK businesses stay downbeat about economy, surveys show

UK business sentiment remained weak, with the CBI output expectations balance at -24 in May versus -25 in April and still below February’s -13, while the output balance for the three months to May fell to -31 from -24. The IoD economic confidence index improved to -53 from -64, but remains deeply negative, and firms cited weak household spending and Middle East tensions as headwinds. Selling price expectations stayed elevated, though below April’s three-year high.

Analysis

The market is still pricing this as a mild UK growth slowdown, but the more important signal is margin pressure: weak demand plus elevated price expectations is the classic setup for sticky input costs, lower volume, and delayed order conversion. That combination tends to hit domestic cyclicals, discretionary retailers, and small-cap services first, while leaving the market more vulnerable to guidance cuts than to near-term earnings misses. The geopolitical overlay matters less for macro beta than for cost volatility, especially in transport, energy-intensive manufacturing, and imported goods pricing.

The second-order effect is on rate expectations and duration sensitivity. If firms remain reluctant to spend and households stay weak, the market can drift back toward a lower terminal-rate narrative even without a clean growth collapse; that is supportive for long-duration assets but negative for banks, insurers, and domestically levered industrials whose earnings depend on loan growth and transaction activity. The more negative the survey data gets over the next 4-8 weeks, the more likely we see a broader de-rating of UK midcaps versus global earners.

The CME angle is a quieter structural positive for venue quality and derivatives monetization: 24/7 crypto futures trading improves accessibility, reduces weekend risk premiums, and should deepen institutional participation. Over time, that can concentrate activity in regulated futures rather than spot venues, which is favorable for CME’s fee pool and volatility capture. Near term, the big catalyst is whether this increases open interest during Asian and weekend sessions; if it does, CME can take share from offshore venues without needing a huge directional move in bitcoin.

Key Decisions for Investors

• Long CME into the next 1-3 months on a relative-quality basis; use weakness to build size. Thesis: 24/7 trading increases contract velocity and weekend participation, with limited incremental capital intensity. Risk/reward favors upside rerating if open interest and average daily volume inflect.
• Short UK domestic cyclicals / consumer beta via UK retail and small-cap services proxies over a 4-8 week horizon. The setup is weaker volumes plus margin compression, and the risk/reward improves if upcoming surveys or company updates confirm delayed spending.
• Pair trade: long UK large-cap global earners, short UK domestics. This isolates macro weakness while reducing outright market risk; the spread should work if the UK continues underperforming on internal demand but global revenue names remain resilient.
• Add optionality on UK rate-cut sensitivity: buy medium-dated calls on UK duration-sensitive assets or rate beneficiaries if you think the weak-demand narrative deepens over the next 1-2 months. The trade works if the market shifts from 'soft patch' to 'policy response' pricing.