Britain’s economy is bouncing back in the New Year, according to new figures, which showed a jump in retail sales, an increase in exports and a record surplus in the public finances for January.
The upbeat news is a triple boost for Rachel Reeves after she was widely criticised for undermining the economy with the turmoil over her November Budget.
It comes after grim figures on jobs including in London where the unemployment rate has hit 7.6%.
As shoppers returned to spending in the New Year, retail sales grew by 1.8% last month in the biggest rise for more than a year and a half.
Online retailers saw strong demand for jewellery and sports supplements, according to official figures.
The Office for National Statistics (ONS) said the total volume of retail sales, which measures the quantity bought, rose by 1.8% in January, up from 0.4% in December.
Last month’s rise was the biggest increase since May 2024.
In further good news for the Chancellor, growth in the UK's private sector gained further momentum this month as manufacturers were boosted by the biggest surge in export orders since 2021, a new survey shows.
The S&P Global flash UK composite purchasing managers' index (PMI), which is watched closely by economists, recorded a reading of 53.9 for February, up from 53.7 in January.
The flash figures are based on preliminary data. Any score above 50.0 indicates activity is growing, while any score below means it is contracting.
The rise in activity was largely driven by the UK’s giant services sector which includes businesses from hospitality to leisure and finance to healthcare.
Separately, Britain notched up a record Government surplus in the public finances.
The rise was sparked by a jump in self-assessed tax payments and a fall in debt interest to the lowest level since March 2020.
The ONS said there was a public sector net borrowing surplus of £30.4 billion in January.
It was the highest public finances surplus, when the Government receives more in tax and other revenues than it spends, for any month since records began in 1993.
The Treasury surplus was also £6.3 billion bigger than predicted by the Office for Budget Responsibility and £15.9 billion higher than the same month a year ago.
It came after the Government received a record tax take for January, with the freeze on income tax thresholds helping to push self-assessment tax receipts to £29.4 billion, up £3.6 billion from a year ago.
ONS chief economist Grant Fitzner said: “January, which is traditionally a strong month for self-assessed tax receipts, saw the highest surplus since monthly records began.”
Responding to the figures, Chief Secretary to the Treasury James Murray said: “We have the right plan to build a stronger, more secure economy.
“We have doubled our headroom, we are bringing inflation down, we are making sure that taxpayers’ money is spent wisely.”
Ms Reeves is now seeking to boost the economy by building closer ties with the European Union after the blows to trade inflicted by Brexit.
But shadow Chancellor Sir Mel Stride stressed: “Labour have borrowed £112.1 billion so far this year, the fifth highest borrowing on record.
“Record high taxes and irresponsible spending have weakened the economy.”
Paul Dales, chief UK economist at Capital Economics, said it was clear that the economy had strengthened since the end of last year.
“But the lingering drag from last year’s hikes in taxes for business will probably prevent it from growing by much more than 1.0% this year,” he added.
