January delivered a record UK budget surplus, offering the Treasury some near-term breathing space ahead of the spring statement. At the same time, business surveys suggest growth is picking up modestly, even as hiring remains under pressure. Beyond the UK, India has approved a significant state-backed venture fund to support deep tech, while defence spending continues to reshape corporate fortunes closer to home.
Read on for the full context.
The UK posted its largest monthly budget surplus since records began in 1993. According to the Office for National Statistics, public sector finances recorded a £30.4bn surplus in January - double the figure from January 2025 and well above the £24bn forecast by the Office for Budget Responsibility.
The strength largely reflected a sharp rise in tax receipts. Capital gains tax brought in £17bn, almost £7bn more than a year earlier, while self-assessment income tax receipts reached £29.4bn. With the income tax threshold freeze since 2022, people have been lifted into higher tax brackets over time.
Lower debt interest payments also helped. Interest costs fell to £1.5bn in January - around £5bn less than a year earlier - partly because some government debt is linked to inflation, which has eased compared with last year.
Even so, the broader fiscal position remains tight. Borrowing over the first 10 months of the financial year stands at £112.1bn, below the £120.4bn forecast by the OBR, but national debt has reached £2.9tn - 92.9% of GDP, its highest level since the early 1960s. As Henning Diederichs of the Institute of Chartered Accountants in England and Wales put it, “The budget overrun remains significant, re-emphasising the weak economic position that is driving the government’s need to borrow.”
Survey data suggests the economy has started the year with modest momentum. The S&P Global UK Composite PMI rose to 53.9 in February from 53.7 in January - its highest level since April 2024. Readings above 50 indicate expansion.
Chris Williamson, chief business economist at S&P Global, said the figures show “further signs of an encouraging start to the year for the UK economy.” The surveys are consistent with quarterly growth of around 0.3% in Q1, an improvement on the 0.1% recorded in the final quarter of 2025.
Retail sales also surprised to the upside, with January posting the fastest annual growth in nearly four years. However, some of this strength was concentrated in niche areas such as commercial art galleries and online jewellers, potentially linked to rising gold prices.
The improvement in activity has not yet translated into hiring. Staffing levels fell sharply in services as firms adjusted to higher social security payments introduced in April 2025. As Allan Monks of J.P. Morgan noted, “Inflation stickiness is an issue that has improved but has not gone away” - a reminder that while growth may be stabilising, policy pressures remain finely balanced.
India has approved a $1.1bn state-backed venture capital programme designed to channel government funding into startups via private investment firms. Structured as a fund of funds, the ₹100bn initiative focuses on artificial intelligence, advanced manufacturing and other deep tech sectors that typically require longer time horizons and greater capital intensity.
The move builds on a 2016 programme that committed ₹100bn to 145 private funds, which in turn invested more than ₹255bn across 1,370 startups. This new iteration is more targeted, aiming to strengthen smaller domestic VC funds, support early-stage founders and expand investment beyond major cities.
The scale of India’s startup ecosystem has grown dramatically. IT minister Ashwini Vaishnaw highlighted that the number of recognised startups has risen from fewer than 500 in 2016 to more than 200,000 today, with more than 49,000 registered in 2025 alone - the highest annual total on record.
The approval comes amid softer private funding conditions. According to Tracxn, Indian startups raised $10.5bn in 2025, down just over 17% year-on-year, while funding rounds fell nearly 39% to 1,518 transactions. As Vaishnaw said, the programme will remain adaptable, noting that “extensive consultations have taken place with all stakeholders.”
Against a backdrop of heightened geopolitical tension, BAE Systems delivered record annual results. Underlying earnings before interest and tax rose 12% to £3.32bn for 2025, while sales increased 10% to £30.66bn. Its order backlog reached £83.6bn by year-end, with order intake at £36.8bn.
The growth reflects a broader shift in government priorities. European nations in particular have accelerated rearmament, and in the UK the prime minister has indicated a desire to increase defence spending towards 3% of GDP. Notable contracts last year included a £4.6bn Typhoon aircraft order from Turkey and a Type 26 frigate order from Norway.
Markets have responded accordingly. Shares have risen nearly 20% since the start of 2026 and have more than trebled since Russia’s invasion of Ukraine in 2022. Richard Hunter of Interactive Investor observed that the results reflect the “unfortunate sign of the times that defence stocks are squarely back in fashion, as governments around the world look to protect their interests and lands from growing tensions.”
The company expects further growth in 2026, forecasting earnings to rise between 9% and 11% and sales between 7% and 9%, albeit at a slower pace than this year.
In the UK, stronger tax receipts and better business surveys offer short-term reassurance, but overall debt levels and employment trends somewhat temper the optimism.
Internationally, capital is being directed with great purpose - whether into India’s deep tech ambitions or the expanding global defence sector. The common thread is a shift toward resilience, with governments and businesses positioning for a more complex and less predictable economic landscape.