UK borrowing surplus hits record high

According to the Office for National Statistics, public sector net borrowing (excluding public sector banks) was in surplus by more than £16.7bn last month.

That was more than double the £7.5bn surplus recorded in January 2023 and the largest since monthly records began in 1993.

Analysts had, however, been expecting a surplus closer to £18.5m, while the Office for Budget Responsibility had forecast £18.2bn

The start of a year is a strong time for public finances, as self-assessment tax returns need to be paid by 31 January.

Combined self-assessed income and capital gains tax receipts were £33bn, down £1.8bn on the same period a year earlier.

But borrowing in the financial year to January was £3.1bn lower at £96.6bn, as falling inflation cut the cost of servicing debt.

Lower-than-expected debt interest payments also benefited total central government expenditure. It came in at £102.6bn, up £1.6bn on January 2023 but below the OBR’s forecast for £103.9bn

Jessica Barnaby, ONS deputy director for public sector, said: "With reductions in the RPI rate, interest payable on government gilts and without last year’s energy support scheme, overall expenditure was down on this time last year, despite increased spending on public services and benefits.

"As a proportion of GDP, public sector debt is up on the year, and remains at levels last seen in the 1960s."

Chancellor Jeremy Hunt has long hinted that the March budget - potentially the last before a general election - could include tax cuts.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Looking ahead to the budget, we think the OBR will revise down its forecast for debt interest payments in 2024/25 by about £14bn.

"The OBR might make other revisions to its economic forecasts which will squeeze the chancellor’s fiscal headroom. But the chancellor can pencil in even more implausible figures for future levels of non-interest spending in order to hit a self-imposed target, for the debt-to-GDP ratio to be projected to be falling in five years’ time.

"So the real limit on Hunt’s scope to deliver the tax cuts his MPs are clamouring for is the gilt market’s willingness to absorb higher issuance, and any desire he has to avoid the MPC delaying interest rate cuts."

Martin Beck, chief advisor to the EY Item Club, said: "January’s outturn, combined with downward revisions to earlier months, means borrowing in 2023/24 should come in below the OBR’s forecast of £123.9bn. But with the budget approaching, the chancellor’s focus will be on how much headroom the OBR projects against his medium-term fiscal targets.

"On balance, [we] think the chancellor will have room to manoeuvre, but major tax cuts are looking less likely."