However, looking at the broader picture, GDP grew by 0.1% in the three months to March 2023 and monthly GDP is now estimated to be 0.1% above its pre-coronavirus levels (February 2020).

The ONS said the services sector fell by 0.5% in March 2023 and was the main contributor to the fall in monthly GDP. Within this sector, there was a 1.4% fall for wholesale and retail trade; repair of motor vehicles and motorcycles.

Information and communication was the next largest contributor to the fall in services, with a fall of 1.1% in March 2023. The main driver was motion picture, video and TV programme production, sound recording and music publishing, which fell by 6.1% in March.

The largest offsetting movements for services output were a 1.5% growth in arts, entertainment and recreation, where creative, arts and entertainment activities grew by 3.3% in March 2023. There was also a 0.1% growth in real estate activities.

Inflation and rising borrowing costs

Alice Haine, personal finance analyst at Bestinvest, said: “A shrinking economy in March is to be expected considering the multiple challenges hitting output from stubbornly high inflation and rapidly rising borrowing costs to falling real incomes and perpetual strike action.

“Falling output is worrying news for household finances as it signals the economy is not faring particularly well with businesses and consumers constraining expenditure in the face of so much uncertainty – something that can lead to pay freezes and lost jobs.”

UK dodges technical recession

Tom Stevenson, investment director for personal investing at Fidelity International, said: “It looks like the UK may dodge a technical recession this year. But with the key services side of the economy continuing to slow in the face of higher borrowing costs and rising prices, it still feels like we’re walking through treacle. The consumer is on strike – the primary driver of a fall in GDP in March and the most anaemic of growth for the first quarter as a whole. With inflation still in double digits, it feels depressingly like a re-run of 1970s stagflation.

“However, it is always darkest before the dawn. Following this week’s further quarter point rate hike to the highest level in 15 years, inflation will fall sharply from here. The Bank of England has done its job now and there is light on the horizon. It doesn’t feel like it now, but the fabled soft-landing is on the cards.”