The UK’s private sector shrank for the eighth quarter in a row at the start of 2023 but saw slowdown in decline, according to new data.
The Confederation for British Industry (CBI) said its latest growth report showed “signs of green shoots” amid projections that UK industry will return to growth in the next quarter.
However, Alpesh Paleja, lead economist at the CBI, said the UK “still faces considerable economic headwinds”.
It comes after the Chancellor announced spending plans, including an increased childcare provision, in order to support the UK labour market as part of the Government’s economic growth strategy.
The Office for Budget Responsibility (OBR) also confirmed the UK economy is on track avoid a technical recession, which means two consecutive quarters of decline.
However, the fresh CBI data showed that activity across the UK private sector contracted by around 4% over the three months to March.
It is the eight consecutive quarter of decline but the mildest drop since July 2022.
The drop was largely driven by weakness in the service sector, amid an 11% drop in consumer services volumes, according to the survey.
Meanwhile, distribution activity nudged slightly higher and manufacturing output contracted but at a notably slower pace over the quarter.
The CBI said it is expected to witness growth of 5% in the next quarter, with manufacturing firms particularly optimistic about a recovery in output over the next three months.
Mr Paleja said: “It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity.
“But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.
“While the Chancellor has set out an ambitious plan to deliver growth in his Spring Budget, there’s broad recognition that the UK still faces considerable economic headwinds.
“Inflation remains stubbornly high and, while businesses and consumers can expect lower energy prices to feed through later in the year, the pressures on household budgets will weigh on consumer spending.”