Government borrowing recorded the biggest January surplus since 2000 and its lowest year-to-date reading since the financial crisis ahead of chancellor Philip Hammond’s first Budget on 8 March, despite a lower-than-expected monthly surplus.
With tax receipts in January traditionally far higher than every other month as self-assessment returns come in, the January surplus of £9.4bn was £300m higher than the previous year, making it the largest surplus since the turn of the millennium, the ONS said.
The surplus was still not as high as economists had predicted, falling significantly lower than consensus expectations of a £14.4bn surplus during the month. Nevertheless, the government is still on track to outperform the official forecasts from the Office for Budget Responsibility (OBR).
Thomas Pope, a research economist at the IFS, said: "It is usual for large surpluses to be run in January, but even so this month’s numbers contained particularly good public finance news.
"A simple extrapolation implies that government borrowing could be up to £12 billion lower this financial year than the OBR forecast in November – at around £56 billion," he said. "Even on a like-for-like basis borrowing is likely to end up between £5 billion and £10 billion lower than the OBR forecast."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics: "Borrowing remains on track to undershoot the OBR’s Autumn Statement forecast, despite January’s smaller-than-expected surplus."
Public sector net borrowing (excluding bailed out banks) for the year from April to January was £13.6bn lower than the previous year with a deficit of £49.3bn, according to the Office for National Statistics (ONS).
Under Hammond's new (and looser) fiscal targets the government must reduce borrowing to 2.5 per cent of GDP, expected to be around £56bn, by the end of the Parliament in 2020.
Howard Archer, chief UK and Europe economist at IHS Markit, said: "We doubt very much that there will be any significant change of tack by the Chancellor in the budget."
He added: "The public finances are markedly stretched and face a long path back to health – with ample scope for marked relapses given the highly uncertain outlook facing the economy as the government negotiates the way out of the EU."
The government's total debt pile – the amount it has accumulated from running deficits over the years – rose to £1.7 trillion, or 85.3 per cent of GDP. This is a 1.9 per cent rise compared with the same point in 2016.
The independent OBR forecasts net debt to rise above 90 per cent of GDP in the 2017-2018 tax year, before dropping to 88 per cent by the end of the next Parliament.
Ross Campbell, ICAEW public sector director, said: “Average net national debt is expected to grow to just under £2 trillion in the next five years and is the highest level of public indebtedness seen since the aftermath of a major world war.
"As the recent furore over funding social care and the prospective changes to business rates demonstrates, the solutions are not straightforward. It is, therefore, imperative that Government devise a robust and financially sound strategy to manage such mind-boggling numbers."