Closing post
So, with the US S&P 500 share index still comfortably higher – up 0.5% at 6,896 points it’s time to wrap up.
Our US Politics Live blog has full coverage of the supreme court’s rejection of Donald Trump’s sweeping global tariffs (though, as economists have been warning, this may not be the end of the trade war).
And here’s our write-up of today’s brigher UK economic news:
Full story: Trump illegally used executive power to impose global tariffs, supreme court rules
Lizzy Galbraith, Senior Political Economist at Aberdeen Investments, predicts ‘a period of heightened uncertainty’ following today’s ruling:
“The Supreme Court has announced a full strike down of tariffs levied under the International Emergency Economic Powers Act.
“IEEPA tariffs account for almost seven percentage points of the 11% implemented US weighted average tariff rate. So, the immediate impact would be for tariffs to decline substantially.
But the Trump administration will likely seek to rebuild the tariff wall to a roughly similar, though likely lower, level through an expansion of the use of Section 232 and 301 tariffs. Use of section 122 is also possible. This may well lead to a period of heightened uncertainty as policy adjusts.
FTSE 100 closes higher after hitting new peak
After hitting a new intraday high when the supreme court ruling was announced, Britain’s blue-chip stock index has closed higher tonight.
The FTSE 100, which soared to a new peak of 10,745 points just after 3pm UK time when the ruling hit the wires, has closed 59 points higher, or 0.56%, at 10,686 points.
Diageo, which has been hurt by Trump’s tariffs on its Scottish whisky brands and Mexican tequila, was the top riser, up 3.9%.
Shres in European carmakers jumped after the supreme court tariff ruling.
The sector is now up 1.1%, Reuters flags, with Stellantis up 2.3% and BMW 0.8% higher.
If there are to be tariff refunds, that could potentially stimulate the US economy, suggests Dario Perkins of City firm TS Lombard.
There was already a 1% fiscal stimulus coming in 2026. You can add another 1% from the tariff reset, plus who-knows-how-much on top of that for refunds... 🔥
— Dario Perkins (@darioperkins) February 20, 2026
But don’t expect prices to fall, he suggests…
unfortunately the companies that have already raised their prices due to the tariffs aren't gonna cut them again... thats not how this works
— Dario Perkins (@darioperkins) February 20, 2026
ING: Tariffs are here to stay
Although the supreme court has pulled the plug on Donald Trump’s IEEPA tariffs, trade levies are here to stay.
So argue ING economists Carsten Brzeski and Julian Geib:
The Supreme Court’s ruling underscores a broader debate over executive power in economic policy. As recent days have shown, not only in trade and tariffs. IEEPA was never intended to be used to implement broad tariffs but was designed to grant the president targeted authority to respond to emergencies. Upholding Trump’s tariffs would have shifted the balance of power from Congress to the President, further enhancing his executive power. The decision ultimately reaffirms constitutional checks and balances to prevent excessive presidential authority.
Europe should not be mistaken, this ruling will not bring relief. Instead, Section 301 and 232 investigations can target specific sectors more precisely than IEEPA’s broad-brush approach. Pharmaceuticals, chemicals, automotive components – all plausible candidates for the next round. The legal authority may be different, but the economic impact could be identical or worse.
The Supreme Court ruled on constitutional limits, not trade policy. Trump’s tariff agenda survives with new legal foundations and a messy transition period. Companies face months of uncertainty about refunds that may never fully materialise, replacement tariffs that will likely restore previous rates, and which sectors get targeted in round two. The scaffolding has come down, but the building remains under construction. No matter how today’s ruling reads, tariffs are here to stay.
What options does Donald Trump now have?
Capital Economics’s chief North America economist, Paul Ashworth, says there are a few ways he could still impose tariffs, but they are more restrictive than using the International Emergency Economic Powers Act (IEEPA) – which the supreme court has just ruled against.
Ashworth explains:
Our guess is that Trump will turn to Section 122 of the 1974 Trade Act, since that explicitly deals with the powers Congress was willing to give the Executive Branch to deal with “large and serious” balance of payments deficits. But Section 122 is pretty restrictive – capping the maximum tariff rate at 15% and (without congressional approval) only for 150 days. The tariff must also be “non-discriminatory”, i.e. one tariff rate for everyone, meaning that Trump will no longer be able to honour many of the “deals” he has negotiated.
Trump could try invoking Section 338 of the original 1930 Smoot-Hawley Tariff Act, which allows the President to impose tariffs of up to 50% on countries that “discriminate” against the US. But as with IEEPA, we strongly suspect that the courts would rule that the explicit provisions included in the much more recent 1974 Trade Act take precedence.
Otherwise, Trump would be left relying on the old tariff workhorses – like Section 232 of the 1962 Trade Expansion Act (on national security grounds) and Sections 201 and 301 of the 1974 Act (on anti-competitive grounds). His administration has been relying a lot on Section 232 to justify its product-specific tariffs on steel, aluminum, lumber, semiconductors and autos. Those statutes require time-consuming investigations first, however. Admittedly, Trump could still rely on his powers under IEEPA to “regulate.. importation” by imposing quotas but, without the associated revenues raised by tariffs, that would still leave the Treasury with a big hole to fill.
The International Chamber of Commerce is warning that there is now ‘fresh uncertainty’ for companies looking to trade with the United States.
ICC secretary general John W.H. Denton AO says
“Many businesses will welcome the prospect of refunds following today’s ruling, given the significant strain that the IEEPA tariffs have placed on corporate balance sheets in recent months.
“But companies should not expect a simple process: the structure of U.S. import procedures means claims are likely to be administratively complex. Today’s ruling is worryingly silent on this issue and clear guidance from the Court of International Trade and the relevant U.S. authorities will be essential to minimise avoidable costs and prevent litigation risks.
“Looking beyond the prospect of financial relief for some firms, it’s important to bear in mind that the judgment introduces fresh uncertainty into wider trade relations with the United States.
“The administration has previously signalled its intention to reimpose tariff measures through alternative legal avenues, raising the prospect of further disruption to shipments entering the U.S. market. We will also be looking carefully at the potential ramifications for the bilateral deals the U.S. has struck with trade partners on the basis of reducing the now-invalidated reciprocal tariffs.
“Trade policy predictability is vital for business planning and investment. We encourage the U.S. administration to provide clarity on its intended next steps and to ensure that any future measures are developed through transparent processes and within durable legal guardrails.”
Updated
Dollar dips amid speculation of tariff refunds
The dollar is weakening after the supreme court ruling.
The dollar index, which tracks the greenback against a basket of currencies, is down 0.3% today.
The British pound is up almost half a cent, at $1.3511.
Matthew Ryan, head of market strategy at global financial services firm Ebury, says:
“The dollar has sold-off in response to the ruling, which is perhaps somewhat counterintuitive given that it also lost ground when the tariffs were first unveiled. On this occasion, we think that the move probably reflects heightened fiscal concerns, as markets fret that the massive tariff refunds could create a significant US budget shortfall, a higher deficit and an increase in debt issuance.”
Updated
EU: We're analysing the ruling carefully
The EU has said it is analysing the supreme court ruling while continuing its drive to work towards reducing the tariffs the US imposed on European exports, my colleague Lisa O’Carroll reports.
The EU agreed a blanket 15% tariff rate with the US at Trump’s Scottish golf course last July but 50% tariffs are still imposed on steel.
It says:
“We take note of the ruling by the US Supreme Court and are analysing it carefully.
“We remain in close contact with the U.S. Administration as we seek clarity on the steps they intend to take in response to this ruling.
“Businesses on both sides of the Atlantic depend on stability and predictability in the trading relationship. We therefore continue to advocate for low tariffs and to work towards reducing them.”
Snap analysis
Lisa O’Carroll, our senior correspondent writing about international trade, writes:
The supreme court ruling drives a coach and horses through Donald Trump’s “liberation day” tariffs last April which led to trade deals with 20 countries including the UK, EU, China and other countries including Vietnam, Switzerland and Lesotha, a country Trump said “nobody had ever heard of”.
While the supreme court has ruled that Trump did not have authority to impose these tariffs unilaterally, it does not mean the end of the road of tariffs from the US president.
He may continue to impose tariffs on grounds of national security.
The 25% steel tariffs on the UK and 50% on the EU along with punitive extra tariffs on produces that contain an element of steel, known as steel derivatives may well. be justified as part of Trump’s section 232 investigations.
They have been deployed to justify tariffs on products that are deemed at threat to the US’ national security.
The court ruled that the Trump administration’s interpretation of the International Emergency Economic Powers Act to impose tariffs intruded on the powers of Congress and violated a legal principle called the “major questions” doctrine.
Over in Germany, logistics group DHL says it is closely monitoring legal developments regarding U.S. tariffs to ensure customers can exercise their full rights under the law.
After the Supreme Court struck down Donald Trump’s sweeping tariffs brought in under emergency powers, DHL pledged to play a technical role by leveraging customs brokerage technology to track filings.
That would mean that if refunds are authorized, its clients receive money back accurately and efficiently, Reuters reports.
BCC: Supreme Court Tariff Decision Adds To Uncertainty
Today’s ruling does little to “clear the murky waters” for businesses, warns William Bain, Head of Trade Policy at the British Chambers of Commerce (BCC), which represents UK companies.
“This finding relates to the tariffs the President introduced using a 1977 law - the International Emergency Economic Powers Act (IEEPA).
“These include many of the so-called reciprocal tariffs that were introduced as part of the President’s ‘Liberation Day’.
“Different legislation has been used for other US tariffs, such as for steel and aluminium, and the President also has other options at his disposal to retain his current regime.
“Indeed, if he wants to, he could use the 1974 Trade Act to impose even higher tariffs than the additional 10% levies that the UK and Australia have already been affected by in many goods sectors.
“The court’s decision also raises questions on how US importers can reclaim levies already paid and whether UK exporters can also receive a share of any rebate depending on commercial trading terms.
“For the UK, the priority remains bringing tariffs down wherever possible. It’s important the UK government continues to negotiate on issues like steel and aluminium tariffs and reduces the scope of other possible duties.
“We have recently agreed a good deal on pharmaceuticals, and we should focus on using the Economic Prosperity Deal to ensure the UK gets the preferential treatment outlined there.
“Any competitive advantage that we can secure is likely to help boost our exports to the single country, globally, we do most trade with.”
You can read the full Supreme Court judgement here.
JUST DROPPED: Supreme Court decision on (most of Trump's tariffs). They're unconstitutional. They've always been unconstitutional. Turn 'em off.
— Justin Wolfers (@JustinWolfers) February 20, 2026
This wasn't a trade war; it was a pointless and illegal diversion.
Markets rise as supreme court rules Trump exceeded powers in imposing tariffs
Stock market investors are welcoming the supreme court’s rejection of Donald Trump’s global tariffs.
The Dow Jones industrial average, of 30 large US companies, is up 0.3% or 138 points at 49,533 points, having dipped slightly in early trading before the ruling was announced.
The S&P 500 share index, which had opened flat, is now up 0.32%.
Stocks in London are higher too, with the FTSE 100 index now up 75 points or 0.7% at 10,700 points, near its record high (10,715) set earlier this week.
US bond prices are weakening, pushing up the yield (or interest rate) on Treasuries slightly, as traders contemplate whether companies who have paid tariffs will now receive refunds.
The ruling applies to tariffs imposed under the International Emergency Economic Powers Act (IEEPA).
Michael Brown, senior research strategist at Pepperstone, says:
This, to be clear, accounts for roughly half of the rise in the overall average effective tariff rate seen since President Trump returned to office, and chiefly concerns those levies that were imposed on a ‘reciprocal’ basis, as well as those levied on China, Canada, and Mexico regarding ‘fentanyl supply’.
Though the IEEPA tariffs have been struck down, there are at least five other sections of US commerce law which the Admin can lean upon in order to re-implement similar measures. While these measures, by and large, require either Congressional approval, an investigation by the Commerce Department, or are in some way time-limited, there are likely enough alternative methods that the Admin can employ to ensure that the overall average tariff rate remains little changed, at around 16%, once the dust settles. We, of course, await clarity from the Admin as to their exact plans on this front.
As for the issue of refunds, there is not yet clarity on this front either, however the ruling does – at face value – seem to indicate that these are now a distinct possibility.
While we await further information here, it is worth bearing in mind that any refunds are likely to be paid back over some time, and in large part will be funded by an increase in issuance of short-term Treasury bills, the impact of which would likely then be netted-off against any revenue from the aforementioned alternative tariff measures that may be on their way.
Updated
In a 6-3 decision, the US supreme court holds that International Emergency Economic Powers Act (IEEPA) – a 1977 statute which grants the president authority to regulate or prohibit certain international transactions during a national emergency – does not authorize the president to impose the tariffs.
Justices Clarence Thomas, Samuel Alito, and Brett Kavanaugh dissented.
Our US Politics Liveblog has all the action:
Trump’s global tariffs struck down by US supreme court
Newsflash: Donald Trump’s global tariffs have been struck down by the US supreme court.
In a significant legal defeat for the White House, the supreme court has ruled against the president’s signature economic policy.
The court has ruled that Trump exceeded his authority by invoking a federal emergency-powers law to impose his “reciprocal” tariffs across the globe.
Updated
Wall Street has opened cautiously, as investors react to the weaker-than-expected US growth in the last quarter of 2025, and the pick-up in inflation pressures.
The Dow Jones Industrial Average has dipped by 132 points, or 0.27%, to 49,262 points in early trading.
The broader S&P 500 index is down a mere 0.06%, while the tech-focused Nasdaq Composite is flat.
Michael Pearce, chief US economist at Oxford Economics, has analysed today’s US growth report, and says:
The prolonged federal government shutdown and the expiry of the electric vehicle tax credit weighed on Q4 GDP growth, but the core of the economy is resilient. With tariff pressures fading and tax cuts beginning to fuel an increase in capital spending, the economy will gather momentum in 2026.
Consumption growth was dinged by a drop in goods spending but spending on services continued at a solid pace. The winter weather was probably a drag on spending in January, but we expect a sharp rebound in the coming months, driven by a larger tax refund season.
Investment growth continues to be led by AI-related categories, but there are signs that the strength in equipment investment is beginning to broaden, and we expect that to be a bigger story in 2026 as the impact of tax cuts begins to kick in. Final sales to private domestic purchasers were up a solid 2.4%, underlining that the core of the economy is solid.
The federal government spending subtracted more than one percentage point off annualized GDP growth due to the fall in hours worked, which will not be repeated in Q1, even amid the ongoing partial government shutdown.
The slowdown in US growth last quarter may show that Donald Trump’s trade war is having a more damaging impact on the economy, suggest Neil Birrell, chief investment officer at Premier Miton Investors:
“The US economy grew at a considerably slower rate than forecast in the final quarter, after a very strong Q3.
Consumer spending was lower than expected, which is probably a function of lower elements of the K shaped economy being under pressure. The government shutdown clearly had an effect as well.
However, the real question is whether the impact of tariffs is intensifying beyond what we have seen so far. Maybe the Fed has, unexpectedly, more work to do now.”
[Heads-up: the US Supreme Court might possibly issue its ruling on the legality of the Trump tariffs in around 45 minutes]
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.
US real GDP rose 1.4% annualized in 4Q 2025 (Oct–Dec), down from 4.4% in 3Q, per the advance BEA estimate. The report, delayed from Jan 29 due to the Oct–Nov 2025 government shutdown, gives first look at the impact of last year’s disruptions#USGDP #Fed #FOMC #Powell #inflation pic.twitter.com/fffjftxj3b
— Rymond_Inc (@rymondIncKenya) February 20, 2026
It’s still quicker than the UK, though, which only grew by 0.1% in Q4.
Updated
Good news Friday continues. Flash PMIs for the UK in February showing an ongoing rebound. The composite PMI (53.9) at its highest level since April 2024. https://t.co/76ERBDWyr9 pic.twitter.com/VtKF2ZFkOn
— Simon French (@Frencheconomics) February 20, 2026
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.
Key event
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).
Updated
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.
Updated
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.
Updated
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.
The jump in tax receipts last month may show that UK government receipts are starting to get the boost from inflation and wage growth earlier in the year.
Nick Ridpath, research economist at the Institute for Fiscal Studies, says:
Today’s data on the public finances is particularly important, given the outsized impact of January’s self-assessment returns on revenues and borrowing for the year as a whole.
Income tax receipts had been a little disappointing over 2025, lagging behind forecasts even as inflation and wage growth exceeded expectations. But today’s data shows that self-assessment revenues in January were almost £2bn (6%) higher than forecast.
The government’s plan to run a current budget surplus from 2028-29 onwards is reliant on marked reductions in borrowing over the next few years – reductions that will be far easier to achieve if tax revenues continue to come in strongly.
Some positive UK public finance news 👇
— Ben Zaranko (@BenZaranko) February 20, 2026
It now looks like borrowing for 2025/26 will come in not just lower than 2024/25, but lower than was forecast in November. The uptick in income tax receipts (including bumper January self-assessment returns) is a good sign. https://t.co/jG2quday6C
Updated
The surge in precious metals prices this year, and increased demand for sports supplements, both helped British retail sales last month.
The ONS reports:
Mail order retailers, which are predominantly online, experienced a boost from retailers selling sports supplements, as well as continued strong sales volumes by online jewellers. Comments from jewellers reported that demand had hit unprecedented levels.
The big reduction in public borrowing and surge in retail sales in January support other evidence that the economy started the year looking a lot healthier, says Paul Dales, chief UK economist at Capital Economics.
It will give the chancellor something positive to point to in her fiscal statement on 3 March, he points out.
Dales also points out that fiscal drag helped to boost tax receipts, saying:
The freeze on income tax thresholds helped prompt a £29.4bn rise in self-assessment tax receipts, up £3.6bn from a year ago.
That said, January’s surplus was flattered by a £17.0bn surge in capital gains tax receipts in January this year as some taxpayers sought to benefit from lower CGT rates ahead of an anticipated CGT tax rise in the 2024 budget. This is not a sustainable improvement. And the big picture is that borrowing has failed to come down much this year
Updated
Inheritance tax receipts have slightly risen this financial year.
Inheritance Tax receipts for April 2025 to January 2026 are £7.1bn, which is £100m more than the same period last year, HMRC data shows.
Under UK rules, the tax-free threshold for inheritance is £325,000, or £650,000 for a couple.
Isaac Stell, investment manager at Wealth Club, says the middle classes are increasingly facing death duties, saying:
The government has made a pig’s ear of inheritance tax reform. Crackdowns on farmers and business owners proved unpopular and ultimately unworkable, forcing a partial retreat on relief thresholds. But years of frozen allowances, combined with new rules that will bring pensions into the scope of IHT, mean more ordinary families, not just the wealthy, are being pulled into the tax net.
At the same time, HMRC’s tougher enforcement is adding further pressure at what is already a difficult time for bereaved families. With the tax base widening and sharp ‘cliff edges’ in the relief system still in place, proactive planning and accurate reporting have never been more important.
Recent reporting also highlights growing public frustration that inheritance tax is increasingly affecting middle income households, particularly those whose main wealth is tied up in their home or retirement savings. Frozen thresholds, set against steadily rising asset values, mean many people who would not consider themselves wealthy are now facing significant tax bills.
Meanwhile, HMRC investigations are increasing. More than 14,000 bereaved families have been investigated for potentially underpaid inheritance tax since 2022–23, with the number of cases this year running well ahead of last year. These inquiries which are often prompted by data matching and valuation checks can last months or even years, and may result in additional tax, interest and penalties.
Taken together, rising asset values, static allowances and expanded reporting requirements are creating a situation where estates that previously fell outside the IHT net are now becoming liable, leaving many middle-class families caught off guard.
Updated
January’s blistering budget surplus hasn’t made much of a dent in the UK’s national debt, though.
The UK’s net debt-to-GDP ratio at the end of January 2026 was provisionally estimated at 92.9%, which is equal to that of 12 months ago.
Updated
UK deficit on course to undershoot forecasts, in boost to Reeves
January’s blowout budget surplus may help the UK to undershoot borrowing forecasts this year!
With 10 months of the financial year behind us, the UK has run up a deficit of £112.1bn.
That’s £14.6bn less than at this stage a year ago, and £8.3bn less than the £120.4bn forecast by the Office for Budget Responsibility.
Martin Beck, chief economist at WPI Strategy, says:
Although January, traditionally a bumper month for self-assessment and capital gains tax, delivered a typical budget surplus, the £30.4bn excess of revenues over spending was much larger than the £24.1bn forecast by the OBR and a record high. That leaves year-to-date borrowing at £112.1bn, £8bn lower than the £120.4bn expected in November’s budget forecast.
With two months of the fiscal year remaining, the deficit is on course to undershoot the OBR’s full-year borrowing forecast of £138.3bn by around £10bn, a positive for a government trying to maintain fiscal credibility amidst recent political turbulence.
Current borrowing, the measure relevant to one of the Chancellor’s key fiscal rules, also came in below expectations in the fiscal year to January, reaching £55.9bn against an OBR forecast of £59.3bn. The deadline for meeting the current budget rule may not be until 2029/30, but November’s headroom is now looking a little more robust than projected.
Still, in absolute terms, borrowing on course to reach around £130bn this year is worrisome for an economy that both the OBR and the Bank of England judge to be close to full capacity. But it also reflects an uncomfortable reality: the private sector has been deleveraging for years and continues to prioritise saving over spending. The public sector deficit is not just a story about government choices, it is the mirror image of private-sector caution.
Updated
Chart: the largest UK monthly budget surplus on record
Looking back at this morning’s public finances, there was a significant jump in tax revenues from self-assessment taxpayers and from capital gains tax.
The ONS reports that the combined receipts from self-assessed Income and Capital Gains Tax receipts rose to £46.4bn in January, £10.5bn more than January 2025.
That’s the highest total for a January on record (not adjusted for inflation), helping the UK to post its biggest ever monthly budget surplus.
UK retail sales smash forecasts
The latest retail sales figure are rather stronger than expected too!
British retail sales rose by 1.8% on a monthly basis in January, the ONS reports, smashing forecasts of a 0.2% rise. That’s the largest monthly rise since May 2024.
On an annual basis, retail sales volumes were 4.5% higher, again higher than forecast.
The ONS reports that growth in January 2026 was partly because of artwork and antiques sales, alongside continued strong sales from online jewellers.
However, over the last three months retail sales were only up by 0.1%, compared with the previous quarter (due to a fall of 0.4% in November).
Here’s ONS chief economist Grant Fitzner to explain:
“Retail sales rose slightly in the latest three months, as sales continued to pick up in the new year following a weak November.
“Motor fuel sales increased a little across the period, while sales of art works, tech retailers and furniture stores also performed well. These were partially offset by falls in supermarket sales.”
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.
— Office for National Statistics (ONS) (@ONS) February 20, 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 ➡️ https://t.co/bvKpcgAoLr pic.twitter.com/cf1itbvgrS
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.
Updated
Introduction: Public finances and retail sales coming up...
Good morning. We’re about to get a new healthcheck on the British economy, with the latest public finances and retail sales data.
Economists predict that January was a bumper month for the public finances, as people rushed to pay self-assessment tax bills before the deadline at the end of the month.
The City expects January’s surplus could come in at a whopping £23.8bn, as the public sector received more in taxes and other income than it spent. That would be a record for any January – a welcome boost for the chancellor ahead of next month’s Spring economic forecasts.
Retail spending may have slowed in January, though. Economists predict monthly growth of just 0.2%, down from 0.4% in December, although the annual pace could pick up to 2.8% from 2.5%.
The agenda
7am GMT: UK retail sales for January
7am GMT: UK public finances for January
9am GMT: Eurozone flash PMI report
9.30am GMT: UK flash PMI report
1.30pm GMT: US GDP report for Q4 2025
2.45pm GMT: US flash PMI report
3pm GMT: University of Michigan’s consumer sentiment index for February
