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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 coming quarter.

However, Alpesh Paleja, chief economist at the CBI, said the UK “still faces considerable economic hurdles”.

It comes after the Chancellor announced spending plans, including increased childcare provision, to support the UK job market as part of the Government’s economic growth strategy.

The Office for Budgetary Responsibility (OBR) also confirmed that the UK economy is on track to avoid a technical recession, meaning two consecutive quarters of decline.

However, new CBI data showed that activity across the UK private sector contracted by around 4% over the three months to March.

It is the eighth consecutive quarter of decline, but the slightest drop since July 2022.

The drop was largely due to weakness in the service sector, amid an 11% drop in consumer service volumes, according to the survey.

Meanwhile, distribution activity increased slightly and manufacturing production contracted, but at a noticeably slower pace during the quarter.

The CBI said it was expected to witness 5% growth in the next quarter, with manufacturing companies particularly optimistic about a recovery in production over the next three months.

Paleja said: “It is encouraging that the private sector is expected to grow again in the coming months, coinciding with a variety of other data that indicates some resilience in economic activity.

“But let’s be clear: At best, this illustrates an economy bordering on stagnation-like conditions instead of delivering the strong, sustainable growth we need.

“While the Chancellor has set out an ambitious plan to deliver growth in his spring budget, there is wide recognition that the UK still faces considerable economic hurdles.

“Inflation remains stubbornly high, and while businesses and consumers can expect lower energy prices later in the year, pressures on household budgets will weigh on consumer spending.”