Jeremy Hunt has been provided with a boost after the latest set of figures for government borrowing showed the UK running its largest monthly budget surplus since modern records began more than 30 years ago.
Figures from the Office for National Statistics (ONS) showed that, despite the weakness of an economy stuck in recession, the state’s tax receipts in January were £16.7bn higher than spending.
The ONS said the deadline for paying self-assessed income tax at the end of last month, coupled with lower interest payments on government debt, helped explain the size of the surplus – more than double the £7.5bn of January 2023.
Financial markets had expected the UK to be even more firmly in the black last month, forecasting an £18.7bn surplus. However, thanks to revisions to previous data, borrowing in the first 10 months of the 2023-4 financial year came in at £96.6bn. That was almost £10bn less than had been forecast by the Office for Budget Responsibility, the government’s tax and spending watchdog.
Jessica Barnaby, the ONS deputy director of the public sector division, said: “January’s surplus is the largest in nominal terms since monthly records began in 1993, although borrowing in the year to January is only slightly lower than the same period last year.”
Barnaby said the fall in inflation as measured by the retail prices index had meant lower payments to those holding government bonds and that the end of last year’s support for energy bills had also reduced state spending.
The ONS said national debt as a share of the economy had continued to increase and stood at 96.7% of gross domestic product (GDP) in January – up 1.8 percentage points since January last year.
Last month’s borrowing figures will be the last before Hunt’s budget on 6 March and analysts said they would provide the chancellor with slightly more leeway to cut taxes.
Ruth Gregory, UK analyst at Capital Economics, said: “January’s public finances figures delivered some much-needed good news for the chancellor in the lead-up to the budget. But we doubt this will pave the way for a big pre-election splash.
“We think the chancellor will be handed ‘headroom’ of just £15bn (0.5% of GDP), limiting his ability to unveil big unfunded tax cuts if he wishes to adhere to the fiscal rules.”
The chief secretary to the Treasury, Laura Trott, said: “While we will not speculate over whether further reductions in tax will be affordable in the budget, the economy is beginning to turn a corner, with inflation down from over 11% to 4%.”
Last month the International Monetary Fund strongly advised Hunt against including tax cuts in the budget. On Wednesday, the US-based body was criticised by the Treasury committee of MPs for refusing to appear before it to justify its forecasts for the UK.
Harriett Baldwin, the committee’s chair said: “The IMF’s outright refusal to let us scrutinise their forecasts of the UK economy in public is infuriating. Yet they continue to utter public pronouncements about the UK from their perch in Washington. As the IMF is a public body partly funded by the UK as a shareholder, I find this incredible.”
Separately, the latest health check on manufacturing from the CBI found that the slump in UK factory output deepened in February. Of the 344 firms polled by the lobbying organisation, 42% said they had cut production in the three months to February, while 23% reported an increase. The gap of -19 points compared with -10 points in the three months to January.
Firms were more optimistic about the next three months, with an improvement in order books expected to boost output.
