Britain’s economy has shown early signs of improvement since Chancellor Rachel Reeves delivered her annual Budget in November, following a prolonged period of uncertainty for businesses and households.
Recent surveys suggest momentum picked up at the start of the year. Business activity recorded its strongest month in January since before Keir Starmer became prime minister in July 2024, while consumer confidence reached its highest level since August. Retail sales volumes also surprised on the upside, rising in December at their fastest annual pace since April, according to official figures.
Purchasing managers’ surveys point to a broad-based upturn. Service firms led the improvement, while factory order books expanded at their fastest rate in almost 4 years. However, analysts have warned that the recovery may prove fragile. Despite January’s gains, the S&P Global Purchasing Managers’ Index remains below its pre-COVID average under Starmer’s leadership.
Consumer sentiment presents a mixed picture. GfK’s confidence index edged up again this month, but a shorter S&P Global survey suggested confidence slipped to a nine-month low, highlighting ongoing caution among households.
Spending data also remains uneven. Although retail sales strengthened in December after weak results in October and November, other indicators have been softer, and several major retailers reported disappointing end-of-year trading.
Economic growth was stronger than expected in November, with GDP rising by 0.3%, the largest monthly increase since June. This was partly driven by Jaguar Land Rover returning to full production after a cyberattack, alongside resilient services activity.
The labour market remains a weak spot. Payrolled employment fell sharply in December, partly reflecting a payroll tax rise introduced last year. Businesses continue to hold back on hiring, with services sector employment falling faster in January than the month before.
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