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The CBI expects the economy will return to growth in the next quarter – but warned the UK is “skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need”.
The UK’s private sector has shrunk for the eighth consecutive quarter.
That is according to data from the Confederation for British Industry, which said its latest snapshot of the sector showed “signs of green shoots” – with projections that UK industry will return to growth in the next quarter.
The organisation’s lead economist, Alpesh Paleja, said the expected return to growth was “encouraging” and supported other data showing 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,” he warned.
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The CBI data showed that activity in the UK private sector contracted by around 4% in the three months to March – the eighth consecutive quarter of decline, but the mildest drop since July last year.
The main driver was a weak services sector – the survey showed an 11% drop in consumer services volumes.
Distribution activity increased slightly while manufacturing contracted, albeit at a slower pace over the quarter.
Chancellor Jeremy Hunt announced plans to deliver growth in his spring budget, including increased childcare provision to help parents get back to work.
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The Office for Budget Responsibility (OBR) also confirmed the UK economy is on track to avoid a technical recession, which means two consecutive quarters of decline.
But Mr Palega said the UK is still facing “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,” he said.
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