Brighter UK economy gives Reeves a springboard for March statement
The economic backdrop to Rachel Reeves’s upcoming spring statement appeared to brighten on Friday after a trio of reports painted a better-than-expected picture of the UK economy.Record monthly public finances, a surge in retail spending and accelerating business activity offered the most coherent picture of recovery since last autumn, economists said, and provided the chancellor with a more positive narrative before her 3 March statement.“It’s been a hat-trick of good economics news for once for the UK,” said Sandra Horsfield, a senior economist at Investec bank.“We had a disappointing end to last year, but as things look, we may be starting 2026 on a much brighter note.”Public sector finances posted their biggest monthly budget surplus since records began in 1993, of £30.
4bn in January, according to the Office for National Statistics.The figure comfortably beat the forecast of £24bn made by the Office for Budget Responsibility, the government’s official forecaster, and was driven by a large increase in self-assessment and capital gains tax receipts.It was double the surplus recorded in January 2025.Retail sales in Britain surged by 1.8% in January, the largest monthly increase in almost two years and partly driven by sales of artwork and antiques sales in January, alongside continued strong sales from online jewellers.
Rounds of heavy discounting and post-Christmas sales drew customers back to bigger-ticket purchases, with furniture and tech among the biggest-selling categories over the past three months,On both fronts there were caveats,January is traditionally a strong month for self-assessed tax receipts, potentially flattering the public finance numbers, while retail sales got an artificial bump from jewellers seeing “unprecedented” levels of demand, the ONS said, amid soaring gold prices,But the figures were further boosted by polling that showed momentum across the UK’s private sector, with a survey showing the fastest rise in activity since April 2024,The flash poll of UK purchasing managers by S&P Global found there was “a robust and accelerated upturn in new work” at UK companies this month, with companies in the manufacturing and services sectors reporting solid rates of business activity expansion.
That work upturn followed a fall in inflation to 3% in January from 3.4% in December, fuelling expectations that the Bank of England will soon cut interest rates again.“The economy started the year looking a lot healthier and will give the chancellor something positive to point to in her fiscal statement on 3 March,” said Paul Dales, chief UK economist at Capital Economics.It adds up to give Reeves more headroom at the spring statement, with government borrowing running about £8bn below the OBR’s full-year forecast and government borrowing costs having fallen since November.Rob Wood, chief UK economist at Pantheon Macroeconomics, said the chancellor could “probably bank on having a bit more headroom than she had in the autumn budget” as a result.
But Wood cautioned that the economic outlook beyond the spring statement was less certain, amid plans to raise fuel duty later this year for the first time in 15 years, with the revenue impact difficult to predict.The government will also have to navigate the Gorton and Denton byelection in Greater Manchester on 26 February, in what will be a significant test for Keir Starmer.“Politically, the situation is still difficult,” said Horsfield.“There are plenty of hurdles yet to be overcome.”While the cooling of inflation has raised hopes of further interest rate cuts from the Bank of England, analysts also cautioned that any cuts would themselves be a product of an economy still struggling for momentum.
Unemployment rose to a five-year high of 5.2% in the final quarter of last year, particularly among young people, while Friday’s PMI data showed job losses continuing for the 17th consecutive month in February as firms responded to higher employment costs.“One swallow does not make a spring,” said Danni Hewson, head of financial analysis at AJ Bell.“Fundamentally the UK economy remains weak and vulnerable and the high levels of unemployment, particularly amongst the young, hint at a difficult future ahead.”
Martyn Webster obituary
My twin brother, Martyn Webster, who has died aged 86, was influential in the development of microsurgery both in the UK and internationally.In 1971 he joined the Canniesburn regional plastic surgery unit at Glasgow Royal Infirmary, one of the UK’s most respected centres for reconstructive surgery, with an international reputation as a centre of excellence, and in 1976 he became a consultant and senior lecturer there. His clinical experience covered a wide range of reconstructive procedures, especially microsurgery, head and neck surgery, hand surgery and breast reconstruction.He was a founding member of the early microsurgical societies – including the Microsurgery Travelling Club (1977) and the British Microsurgical Society (1981). He developed and directed training courses in microsurgery, and in 1986 published Free Tissue Transfer, one of the earliest books on the subject
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Local reporter ‘shocked’ over picture of his face on punchbag at UK town hall
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Ketamine addiction making teenagers wet the bed, says UK’s first specialist clinic
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