Signs of Economic Recovery for UK Businesses and Consumers Emerge

Economic Recovery Indicators

LONDON, Jan 26 (Reuters) - Britain's economy has shown signs of picking up since finance minister Rachel Reeves' annual budget statement in November, following months of uncertainty for employers and households.

Business Growth Trends

Surveys published last week indicated that businesses had their best month in January since before Keir Starmer became prime minister in July 2024, while consumer confidence reached its highest since August that year.

Consumer Confidence Insights

Retail sales volumes rose in December at the fastest annual pace since April, according to official data.

Inflation and Labour Market Challenges

However, the labour market remains weak - partly due to a payroll tax increase introduced by Reeves last year - and Britain still has the highest inflation among Group of Seven rich economies.

Following are graphics summarising the state of the world's sixth-biggest economy.

BUSINESS BOUNCE-BACK

Businesses reported the fastest upturn this month since April 2024, led by services firms, while factory order books expanded at the quickest pace in almost four years, according to purchasing managers' surveys.

Analysts cautioned the recovery may not be sustained. Despite January's jump, the S&P Global Purchasing Managers' Index remains below its pre-COVID average under Starmer.

CONSUMERS TURN MORE POSITIVE

Britons remain cautious, but GfK's consumer confidence index edged up this month week to its highest since August 2024. By contrast, S&P Global said its shorter January survey showed consumer sentiment dipping to a nine-month low.

Retail sales volumes rose unexpectedly in December after a weak October and November, official data showed. Other gauges of spending have been softer, and some major retailers have reported underwhelming end-of-year sales.

GDP DATA SURPRISED IN NOVEMBER

Britain's economy grew by a stronger-than-expected 0.3% in November, its strongest monthly rise since June. Output was boosted by the return to full production at Jaguar Land Rover after a cyberattack and by stronger-than-expected services activity.

INFLATION TICKS UP, BUT SEEN FALLING

Inflation rose more than forecast to 3.4% in December but is expected to slow sharply soon. Bank of England Governor Andrew Bailey has said it is likely to be close to the central bank's 2% target by April or May.

Some other BoE policymakers have sounded less relaxed. Megan Greene said on Friday she remained concerned about lingering wage-driven inflation pressures.

JOBS MARKET STAYS WEAK

The labour market remains subdued, with the number of payrolled workers falling in December by the most since November 2020 - although, in that period, some large preliminary drops were revised up.

Last week's PMI survey showed businesses remained wary of hiring, with employment in the services sector declining at a faster rate in January than in December.

(Writing by William Schomberg and Andy Bruce. Editing by Mark Potter)