LONDON, Feb 20 (Reuters) - British businesses have extended their early 2026 rebound into a second month, but jobs are still being sharply cut among services firms partly as a result of higher taxes
UK Economy Shows Early Signs of Recovery in 2026
By William Schomberg and David Milliken
LONDON, Feb 20 (Reuters) - British businesses extended an early 2026 recovery in February and consumers started the year confidently, data showed on Friday, although companies are still cutting jobs.
Economic Growth Indicators
The S&P Global UK Composite Purchasing Managers' Index rose to 53.9 in a preliminary report for February from 53.7 in January, the highest level since April 2024, before Prime Minister Keir Starmer's government took office.
"The early PMI data for February bring further signs of an encouraging start to the year for the UK economy," said Chris Williamson, S&P Global chief business economist.
PMI readings above 50.0 indicate growth in activity, while those below that level point to a contraction.
Comparative Performance with Euro Zone
Equivalent surveys for the euro zone were also stronger than expected but weaker than Britain's.
Official retail sales data for January showed the fastest annual growth in sales volumes in nearly four years - albeit partly driven by more niche areas such as commercial art galleries and online jewellers who may be capitalising on a surge in gold prices.
"The February flash PMI gives a further signal that GDP growth is likely to pick up in Q1, as budget uncertainty fades," said Rob Wood, chief UK economist at Pantheon Macroeconomics.
GDP Growth Projections
PMI POINTS TO 0.3% Q1 GDP GROWTH
The PMI surveys for January - when activity accelerated sharply - and February echoed other signs of an easing of the uncertainty that preceded finance minister Rachel Reeves' budget in late November.
They were consistent with economic growth of about 0.3% in the first quarter, S&P's Williamson said, faster than an expansion of just 0.1% in the last quarter of 2025.
Reeves is due to deliver an update on the budget on March 3. Separate figures published on Friday showed a record surplus in UK public finances in January, making it easier for her to stick to her promise to keep the event low key even if the longer-term fiscal outlook remains challenging.
Interest Rate Expectations
With the BoE now expecting growth of just 0.9% this year, most economists think it will cut interest rates next month and probably once more later in 2026.
Prices charged by businesses rose at the fastest pace since last April but their cost burdens, while still high, increased at the slowest pace in three months.
Allan Monks, chief UK economist at J.P. Morgan, said he expected a BoE rate cut in March but the mixed picture would fuel further division at the BoE.
"Inflation stickiness is an issue that has improved but has not gone away," he said.
Employment and Investment Trends
Staffing levels fell particularly sharply among services firms as employers faced higher social security payments introduced by Reeves in April 2025.
Some firms said they were investing in technology to grow without hiring.
The PMI for the services sector edged down to 53.9 from 54.0 in January. The survey for the smaller manufacturing sector hit an 18-month high of 52.0, up from 51.8.
Total new work increased at the strongest pace since September 2024 and the rise in new work for manufacturers from abroad was the biggest in four-and-a-half years.
(Writing by William Schomberg and David Milliken; Editing by Joe Bavier and Sharon Singleton)
