I spent February half term in the French Alps, smothered by a thick snow cloud for most of the week. In contrast perhaps, the clouds over the UK economy are beginning to thin, and for the first time in a while there might be genuine patches of blue visible through the gloom.
For much of the past two years, Britain has been trudging through a stubborn overcast: persistent inflation, low consumer confidence, and sluggish growth forecasts. But as we all know, weather systems change – often faster than expected.
Inflation, once the darkest cloud in the sky, is drifting away, allowing markets to look beyond survival mode, and the Bank of England expects the rate to fall close to its target of 2% in April. Interest rates, while still high, feel like they have peaked and price pressures have eased materially. This seems to be backed up by Monday’s surprisingly strong retail sales growth figures which showed the highest month-on-month gain since March 2024 - particularly impressive if you take account of the miserable weather which you might expect to dampen spirits and reduce retail footfall.
Alongside this, the Chancellor finds herself with a monthly budget surplus of £30.4bn for January, thanks in part to a rise in capital gains tax receipts, and with current forecasts for full‑year borrowing below the OBR’s projections, the Spring Statement might yet pass without further bad news for voters ahead of the May elections.
For markets, as in meteorology, it’s the direction of travel that matters. Public finances remain tight, productivity is stubbornly flat, and global risks still loom on the horizon but maybe the tone has changed and right now, the UK economy looks less like a washout and more like a clearing sky — imperfect, uncertain, but undeniably brighter than before.
Capital at risk.
