Business confidence lifts UK economy as inflation and jobs remain a worry in World Economy News 27/01/2026 Britain’s economy is showing clearer signs of life after months of uncertainty, with business confidence improving and consumers becoming slightly less pessimistic. The shift follows finance minister Rachel Reeves’ annual budget statement in November, which came at a time when households and employers were still adjusting to weak growth and stubborn price pressures. Surveys published last week suggested January was the best month for businesses since before Keir Starmer became prime minister in July 2024. Consumer confidence also moved higher, reaching its strongest reading since August last year. Official data added to the brighter tone, with retail sales volumes rising in December at the fastest annual pace since April. Still, Britain’s recovery remains uneven. The labour market continues to look subdued, partly linked to a payroll tax increase introduced by Reeves last year. Inflation remains higher than in other major advanced economies, leaving the UK with the strongest price pressures among the Group of Seven. Business bounce-back gains attention Business surveys have been one of the strongest signals that the economy is stabilising. Purchasing managers’ index data showed the fastest upturn in activity this month since April 2024, led by services firms. Factories also reported improving conditions, with order books expanding at the quickest pace in almost four years. The rebound stands out after a long stretch of hesitant investment decisions, slower demand, and tight cost control. Services activity has been particularly important, given its weight in the UK economy. For manufacturers, the improvement in order books suggests demand is no longer as weak as many companies feared. However, analysts have warned against assuming the jump in confidence will last. Despite January’s rise, the S&P Global Purchasing Managers’ Index remains below its pre-COVID average under Starmer, showing that activity is still not fully back to the levels that were normal before the pandemic and the subsequent economic shocks. Consumers turn slightly more positive Consumers are still cautious, but some indicators suggest sentiment is beginning to shift. GfK’s consumer confidence index edged higher again this month, reaching its best level since August 2024. That improvement hints that households may be feeling less anxious about spending decisions compared with late 2024. Other measures, though, tell a different story. S&P Global said its shorter January survey showed consumer sentiment slipping to a nine-month low. The contrast highlights how fragile confidence remains, and how quickly attitudes can change if households sense rising costs or job insecurity. Spending data has also been mixed. Official figures showed retail sales volumes rose unexpectedly in December after weak results in October and November. The increase was the fastest annual pace since April, offering some reassurance that demand held up heading into the end of the year. Yet softer readings elsewhere suggest the recovery in spending may not be broad-based. Some major retailers have reported underwhelming end-of-year sales, underlining that consumers are still selective, particularly for discretionary purchases. GDP surprise adds to improving signals Britain’s output data also delivered a stronger-than-expected reading late last year. The economy grew by 0.3% in November, marking t