Favorable days are dawning for Britain. According to UBS economist Dean Turner, the UK economy is showing signs of resilience. The icing on the cake is the rebound in business activity, which has reached its highest level since August 2024.

Recent purchasing managers' indices point to strengthening momentum, with the services sector leading the recovery. Robust consumer demand has been the key driver. Positive data suggests that a potential downturn is unlikely, which is good news for the UK government.

Still, price pressures remain a major challenge. As the PMI report shows, companies continue to pass on costs tied to higher national insurance contributions. Turner finds it surprising that consumers continue to accept higher prices, given widespread complaints about inflation. He warns that inflation could become ingrained in expectations, creating a ticking time bomb for the Bank of England.

Although the regulator has recently cut its base rate to 4%, monetary policy remains restrictive. Turner expects further reductions ahead, though he admits that the timing is difficult to predict.

This uncertainty contrasts with the situation at the Federal Reserve. In the US, the focus has shifted from questioning whether rates will be lowered to when they will be lowered, Turner said. UBS expects this divergence to support the British pound against a persistently weak dollar.