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Britain’s economy is showing unexpected signs of strength, giving new Prime Minister Andy Burnham an early boost as improving business activity and consumer confidence offset concerns over inflation and strained public finances.
Fresh economic data showed the UK services sector, the country’s main growth engine, expanded at its fastest pace in six months. The S&P Global services Purchasing Managers’ Index rose to 52.8 in August from 52.1 in July, beating every forecast in a Reuters poll.
The improvement follows stronger-than-expected economic growth. UK GDP expanded 0.3% in June and 0.4% during the second quarter, driven largely by services. Britain was on track to record the fastest first-half growth among Group of Seven economies, although economists have cautioned that seasonal adjustments may have boosted the figures.
Investment in technology equipment and industries linked to the artificial intelligence boom also strengthened, according to the Office for National Statistics. Meanwhile, the Confederation of British Industry’s manufacturing order book index reached its highest level since November 2024, supported by the strongest export orders in four years.
British consumers are also becoming more optimistic. GfK’s consumer confidence index improved to -14 in August from -17 in July, while its major purchases measure reached its highest level since December 2021. Retail sales excluding automotive fuel fell 0.9% in July, but volumes during the three months through July were 4% higher than a year earlier, marking the strongest annual increase in five years.
Despite the brighter outlook, Prime Minister Burnham and finance minister John Healey face significant challenges ahead of the October budget.
UK inflation is expected to climb above 3% in coming months, with the U.S.-Israeli war on Iran threatening to keep global energy prices elevated. Business surveys also indicated rising corporate price pressures.
Public finances remain another concern. Government borrowing during the first four months of the 2026/27 fiscal year is several billion pounds above official forecasts. However, previous estimates have repeatedly been revised lower, including a combined £7.5 billion downward revision for May and June.
The improving economic backdrop could nevertheless provide Burnham’s government with valuable momentum heading into its first major budget.
