The outlook for the UK economy is optimistic, says MAGGIE PAGANO

Whisper it quietly, but the outlook for the UK economy looks optimistic.

Business confidence is rising, with companies reporting the fastest manufacturing growth in two years and the largest influx of new orders since April last year.

The latest upbeat figures come from the S&P Global Flash Composite Purchasing Managers’ Index for July, which rose to 52.7 from June’s six-month low of 52.3.

It may seem like a small increase, but the PMI is much higher than expected. It is also better than the eurozone’s PMI in the same survey, which, at 50.1, puts the single currency bloc close to recessionary territory.

There was more good news on the investment front, providing clear evidence that investors are finally waking up to the fact that UK company valuations have been too low for too long.

It is one of the reasons why so many companies have left the London Stock Exchange in recent years.

As Panmure Gordon economist Simon French has been saying for years, the discount that many UK companies have compared to their foreign equivalents is as high as 25%.

In fact, the FTSE 100 index returned just 30% over the past five years, compared with 45% for the Stoxx Europe 600.

But it seems that the realisation has already dawned on him. Earlier this week, French media giant Vivendi announced it would float its Canal+ TV division on the LSE, while China’s Shein is eyeing an exit.

Bank of America data shows that since May, its institutional clients have shifted from being net sellers of UK stocks to net buyers.

Investment manager Morningstar reports that we have seen three consecutive months of money flowing into UK mid-caps – the first time there has been an inflow since November 2022.

Asset managers such as BlackRock and Allianz are adding to their portfolios of British shares, as are UK funds such as Rathbones and Ruffer, which specialises in smaller companies and has doubled its exposure to British stocks in recent months.

Lower inflation, lower interest rates and political stability following Labour’s election victory are the reasons for the change of heart. Labour will want to take credit for this change of tack, claiming that Britain is a safe haven now that it is in charge.

But that would be taking the cake. Chancellor Rachel Reeves cannot take credit for this recovery while proclaiming that Labour has inherited the worst finances since the Second World War.

That can’t be fixed. It’s too late now, but his predecessor, Jeremy Hunt, should get some of the credit for pushing through some of the reforms that made the LSE (and its listings) more attractive.

We are not yet at the stage of cold Britain, but in Europe we are doing pretty well. Following several recent improvements in growth, the UK is in much stronger health than Germany and France, while the pound is appreciating against the euro.

There are some caveats, however. Retail investors are selling UK stocks like hotcakes, while the number of companies listed on the AIM junior growth market has plummeted to its lowest level in 20 years.

Private investors – and entrepreneurs – are the ones who lack confidence, or certainly lack incentives, to invest their savings or create new businesses.

If Labour is serious about creating more wealth, Reeves must fix this problem quickly. He should look to Sweden to see what has been done to transform retail investment and revive domestic capital markets.

I bet he won’t.

Reckitt Deep Clean

Reckitt Benckiser is getting its act together. It’s about time. The previous boss expanded too fast and paid too much in its quest for growth.

The £13bn purchase of baby milk company Mead Johnson was always going to be a ridiculous price, and a contentious one at that, as the current legal dispute is proving.

Kris Licht is doing the right thing, selling home care products such as Air Wick and Cillit Bang (a brilliant product, by the way) to concentrate on healthcare and hygiene. Selling Mead Johnson is also an option. Analysts liked the review, which pushed the stock up to 4493p. Reckitt will need a deeper clean-up before the stock reaches its peak of £76 from five years ago.