New research shows that the UK’s private sector has contracted for the eighth consecutive quarter at the start of 2023; however, the Confederation for British Industry predicts that it will return to growth in the next quarter. The private sector shrunk by about 4% over the three months to March, with the service sector being the hardest hit. According to a CBI survey, manufacturing output and distribution activity have contracted at a slower rate this quarter. Manufacturing firms predict a 12% rise in output for the next three months, and service volumes are expected to increase by 4%. While there are some encouraging signs of economic activity, Alpesh Paleja, lead economist at the CBI, warned that the UK is facing “considerable economic headwinds”. The Bank of England has raised interest rates for the 11th time following a surprise rise in inflation in February. Some business groups are cautious about this decision, and David Bharier, the head of research at the British Chambers of Commerce, suggests that interest rate rises are not sufficient to tackle the fundamental causes of inflation. The OBR has forecast a potential contraction of 0.2% for the UK economy this year but predicts that the country will avoid a “technical recession”. The OBR estimates a fall of 5.7% in real household disposable income per person over the next two financial years, and it expects the UK’s tax burden to reach its highest level since the Second World War.