A trio of positive economic reports on Friday painted a better-than-expected picture of the UK economy ahead of Rachel Reeves's spring statement on 3 March. Record public finances, a surge in retail spending and accelerating business activity provided the most coherent recovery since last autumn, economists said.
Public sector finances posted their biggest monthly budget surplus since records began in 1993, reaching £30.4bn in January, according to the Office for National Statistics. The figure comfortably beat the Office for Budget Responsibility's forecast of £24bn and was double the surplus recorded in January 2025, driven by a large increase in self-assessment and capital gains tax receipts.
Retail sales surged by 1.8% in January, the largest monthly increase in nearly two years, partly fuelled by sales of artwork and antiques and continued strong online jewellery sales. However, the ONS noted that jewellers saw 'unprecedented' demand amid soaring gold prices, and January traditionally flatters tax receipts, potentially inflating the public finance numbers.
A flash poll of UK purchasing managers by S&P Global showed the fastest rise in business activity since April 2024, with 'a robust and accelerated upturn in new work' across manufacturing and services. This followed a fall in inflation to 3% in January from 3.4% in December, raising expectations of further Bank of England interest rate cuts.
The improved data gives Reeves more fiscal headroom, with government borrowing running about £8bn below the OBR's full-year forecast and borrowing costs falling since November. However, analysts cautioned that the outlook beyond spring is uncertain, with plans to raise fuel duty for the first time in 15 years and a challenging political environment ahead of the Gorton and Denton by-election on 26 February.
Despite the positive news, unemployment rose to a five-year high of 5.2% in the final quarter of last year, particularly among young people, and February's PMI data showed job losses continuing for the 17th consecutive month. 'One swallow does not make a spring,' said Danni Hewson of AJ Bell, noting the economy remains fundamentally weak and vulnerable.
