Europe could dodge a recession. But the UK is in a mess

London CNN — Business activity across the 20 countries that use the euro expanded in January for the first time in six months, according to data published Tuesday, providing fresh evidence that Europe’s economy could confound expectations and dodge a recession this year. Berenberg chief economist Holger Schmieding said in a research note that “the still-low level of consumer confidence and the lagged impact of ECB rate hikes still point to a slight contraction in eurozone GDP near-term before the recovery can start to take hold.” Consumer sentiment in Germany, the region’s biggest economy, looks set to improve for a fourth consecutive month in February from a very low base, according to a separate survey published by GfK Tuesday. UK economy contracts sharply The picture looks far less promising in the United Kingdom, however, where January’s PMI survey showed the steepest decline in business activity since the national Covid lockdown two years ago, as higher interest rates and low consumer confidence depressed activity in the dominant services sector. Williamson said Tuesday’s data reflected not only short-term hits to growth, such as strike action, but “ongoing damage to the economy from longer-term structural issues such as labor shortages and trade woes linked to Brexit.” Despite the gloomy start to the year, UK business expectations for the year ahead hit their highest level for eight months, driven by hopes of an improving global economic backdrop and cooling inflation.