Hat-trick of good UK economic news, but US growth misses forecasts – business live | Business
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UK posts largest ever budget surplus of £30.4bn in January
Newsflash: The UK government has racked up a record-breaking budget surplus in January.
Britain’s public sector was £30.4bn in surplus last month, the Office for National Statistics reports, beating expectations of a surplus of around £24bn.
That’s double the surplus recorded in January 2025 – traditionally a strong month due to self-assessment tax bills – and is the highest surplus since monthly records began in 1993.
It’s a clear boost for the chancellor, Rachel Reeves, in the run-up to her spring statement next month,
The public sector (excluding public sector banks) was £30.4 billion in surplus in January 2026.
This was £15.9 billion more than in January 2025 and was the highest surplus since monthly records began in 1993 (not adjusted for inflation).
Read more ➡️ pic.twitter.com/cf1itbvgrS
— Office for National Statistics (ONS) (@ONS) February 20, 2026
ONS chief economist Grant Fitzner says:
January – which is traditionally a strong month for self-assessed tax receipts – saw the highest surplus since monthly records began.
Revenue was strongly up on the same time last year, while spending was little changed, due to lower debt interest payments largely offsetting higher costs on public services and benefits.
Across the first ten months of the current financial year, borrowing is lower than the same period a year ago.
Key events
US government shutdown take bigger bite out of GDP than expected
The slowdown in the US economy in the last quarter of 2025 shows that the government shutdown took a “bigger bite out of GDP than expected”, says Paul Ashworth, chief North America Economist at Capital Economics:
The government shutdown ended up being a much bigger drag on the economy than the Treasury’s data had suggested, with fourth-quarter GDP growth slowing to 1.4% annualised. Federal expenditure contracted at a 16.6% annualised rate, subtracting 1.2% points from overall GDP. That decline will be reversed in the first-quarter of this year, however, when we expect GDP growth to exceed 3% annualised,
In a second blow to the US economy, the Federal Reserve’s preferred measure of inflation has risen by more than expected.
The Personal Consumption Expenditure index rose by 0.4% in December, on a month-over-month basis, exceeding economists’ estimate of a 0.3% rise.
Core PCE, which excludes the volatile food and energy components, rose 0.4% on a month-over-month basis, again faster than the 0.3% increase expected.
US economic growth slowed in Q4 2025
Growth in the US economy has slowed sharply, new data shows.
US gross domestic product (GDP) increased at an annual rate of 1.4% in the fourth quarter of 2025, he U.S. Bureau of Economic Analysis has reported – the equivalent of expanding by 0.35% in the quarter.
The BEA says:
The contributors to the increase in real GDP in the fourth quarter were increases in consumer spending and investment.
These movements were partly offset by decreases in government spending and exports. Imports, which are a subtraction in the calculation of GDP, decreased.
That’s down from annualised growth of 4.4% in the third quarter of last year, and may be a sign that the US government shutdown at the end of last year hit growth.
It’s still quicker than the UK, though, which only grew by 0.1% in Q4.
The pound is on track for a weekly loss, as traders anticipate a rate cut in spring.
Sterling is trading around a one month against the dollar, and on track for its biggest weekly decline since January 2025, down some 1.3% this week.
Today’s upbeat UK economic news hasn’t dampened expectations of a cut to UK interest rates in March.
A rate cut at next month’s Bank of England meeting is seen as a 78% chance by the money markets, following the drop in inflation – and rise in unemployment – earlier this week.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK predicts the UK’s economic growth is accelerating this quarter:
“Another rise in the Flash Composite PMI to 53.9 in February suggests the private sector’s recovery from the budget is still in train. Indeed, we expect growth to rebound to 0.5% q/q in Q1. That won’t be enough to deter the Monetary Policy Committee (MPC) from cutting interest rates next month.
However, the increase in the output prices balance to its highest level since April suggests underlying inflation is still sticky. That will keep the MPC cautious, so we expect just one more rate cut after March, taking rates to 3.25%.
Eurozone busineses are also having a good February.
Eurozone business activity accelerated faster than forecast this month as manufacturing swung back to growth for the first time since October, S&P Global reports.
This lifted its HCOB Flash eurozone composite PMI to 51.9 in February, from 51.3 in January, showing faster growth (although slower than in the UK private sector this month).
UK private sector growth hits 22-month high
Newsflash: It’s a hat-trick of good economic news for Rachel Reeves!
UK private sector output growth has accelerated to its fastest rate in almost two years, data provider S&P Global reports.
S&P Global’s poll of UK purchasing managers has found there was “a robust and accelerated upturn in new work” at UK companies this week, with both manufacturing and services companies reporting solid rates of business activity expansion.
Chris Williamson, chief business economist at S&P Global Market Intelligence, explains:
The early PMI data for February bring further signs of an encouraging start to the year for the UK economy. A solid rise in output across manufacturing and services has been reported in both January and February, with the rate of expansion gaining pace.
The survey data so far this year are consistent with GDP rising by just over 0.3% in the first quarter if this performance is sustained into March.
The upturn continues to be led by the service sector but there are signs that manufacturing is regaining momentum to join in the recovery, reporting a surge in export orders of a magnitude not seen since the pandemic.
This lifted the Flash UK PMI composite output index to 53.9, up from January’s 53.7, and a 22-month high [any reading over 50 shows activity increased].
However, it’s not universally good news. Employment numbers decreased for the 17th successive month, led by another marked reduction in the service economy, as companies cut back their headcounts.
Williamson says:
Despite enjoying higher demand for goods and services, companies remain focused on boosting productivity to cut costs, resulting in yet another month of steep job losses to prolong the continual jobs downturn that was initiated by the 2024 autumn Budget.
The UK stock market is rising in early trading, after this morning’s flurry of upbeat economic news.
The FTSE 100 share index has gained 38 points, or 0.36%, to 10,665 points, having broken through the 10,700 point mark for the first time this week.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, says:
The FTSE 100 has opened higher this morning, supported by news of a significant reduction in public borrowing and a surge in January retail sales. For context, the UK government almost always runs a budget surplus in January, but this year’s £30.4bn was the largest on record, well ahead of market expectations and more than double the prior year’s level of £14.5bn.
The 1.8% month-on-month uplift in retail sales volumes was also well ahead of forecasts for 0.2% growth, driven by gains across all major categories except department stores. That leaves sales volumes at their highest level since August 2022. But with employment growth flagging and wage growth slowing, households likely won’t be able to maintain this level of spending for long.
UK bond prices are strengthening this morning, pushing down the cost of borrowing.
The yield, or interest rate, on UK 5 year gilts has dropped to its lowest level since September 2024, Reuters reports, at 3.765%. That’s a drop of around two basis points (0.02 percentage points).
10-year bond yields are also down 2bps, while long-dated 30-year gilt yields have dropped by 3bps.
Although small moves, these are in the right direction as far as the government is concerned.
Today’s record budget surplus, and the big jump in retail sales in January, “reinforces a recovery in economic momentum since the November Budget” says Simon French, chief economist at City firm Panmure Liberum.
Wow. A couple of big beats on UK economic data. Bumper January tax receipts (a £30.4bn current surplus) putting the YTD current deficit lower than the OBR’s November forecast. And retail sales up 1.8% MoM; 4.5% YoY. Reinforces a recovery in economic momentum since the November… pic.twitter.com/AahxbktIkj
— Simon French (@Frencheconomics) February 20, 2026
Falling inflation also boosted the UK’s public finances last month.
That’s because the interest rate on some government debt is pegged to the Retail Prices Index measure of inflation, which has eased compared with a year ago.
As a results, the interest bill on central government debt fell to £1.5bn in January, down from £6.5bn in January 2025.
