The economic backdrop to Rachel Reeves\u2019s upcoming spring statement appeared to brighten on Friday after a trio of reports painted a better-than-expected picture of the UK economy.<\/p>\n
Record monthly public finances<\/a>, a surge in retail spending<\/a> 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.<\/p>\n \u201cIt\u2019s been a hat-trick of good economics news for once for the UK,\u201d said Sandra Horsfield, a senior economist at Investec bank. \u201cWe had a disappointing end to last year, but as things look, we may be starting 2026 on a much brighter note.\u201d<\/p>\n Public sector finances posted their biggest monthly budget surplus<\/a> since records began in 1993, of \u00a330.4bn in January, according to the Office for National Statistics.<\/p>\n The figure comfortably beat the forecast of \u00a324bn made by the Office for Budget Responsibility<\/a>, the government\u2019s 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.<\/p>\n Retail sales in Britain surged by 1.8% in January<\/a>, 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.<\/p>\n 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.<\/p>\n 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 \u201cunprecedented\u201d levels of demand, the ONS said, amid soaring gold prices.<\/p>\n But the figures were further boosted by polling that showed momentum across the UK\u2019s private sector, with a survey showing the fastest rise in activity since April 2024.<\/p>\n The flash poll of UK purchasing managers by S&P Global found there was \u201ca robust and accelerated upturn in new work\u201d at UK companies this month, with companies in the manufacturing and services sectors reporting solid rates of business activity expansion.<\/p>\n That work upturn followed a fall in inflation to 3%<\/a> in January from 3.4% in December, fuelling expectations that the Bank of England will soon cut interest rates again.<\/p>\n \u201cThe 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,\u201d said Paul Dales, chief UK economist at Capital Economics<\/a>.<\/p>\n It adds up to give Reeves more headroom at the spring statement, with government borrowing running about \u00a38bn below the OBR\u2019s full-year forecast and government borrowing costs having fallen since November.<\/p>\n Rob Wood, chief UK economist at Pantheon Macroeconomics, said the chancellor could \u201cprobably bank on having a bit more headroom than she had in the autumn budget\u201d as a result.<\/p>\n But Wood cautioned that the economic outlook beyond the spring statement was less certain, amid plans to raise fuel duty<\/a> later this year for the first time in 15 years, with the revenue impact difficult to predict.<\/p>\n 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.<\/p>\n \u201cPolitically, the situation is still difficult,\u201d said Horsfield. \u201cThere are plenty of hurdles yet to be overcome.\u201d<\/p>\n 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.<\/p>\n