United Kingdom Foreign Direct Investment (USD bn)

Recent data shows that the economy flatlined in Q4. A decline in exports and muted private spending were offset by a rebound in business investment and faster government spending growth. A quarter-on-quarter contraction is forecast for Q1 due to higher interest rates and a tough base effect created by the sharp decline in output in December 2022. However, February’s surprisingly large jump in the private-sector PMI suggests upside risks to this projection. Moreover, robust employment growth in January points to a still-solid labor market, which together with an improvement in consumer sentiment in January–February should be propping up private spending. In politics, at end-February the government struck a deal with the EU to reduce trade friction between Northern Ireland and the rest of the UK. This signals warming UK-EU relations under PM Sunak, which is positive for business sentiment.