The UK government posted a record monthly budget surplus in January, reflecting stronger-than-expected tax receipts and reduced public borrowing, according to figures released by the Office for National Statistics (ONS). The surplus amounted to £30.4 billion, the highest on record for a single month since figures began in 1993.
This announcement comes ahead of the upcoming Spring Statement, with sharp attention on how fiscal performance may influence government spending and economic policy.
January Tax Receipts Reach New High
Each January typically sees higher tax income as self-assessment payments peak. This year, the surplus of £30.4 billion in January was more than double that of the previous January, which stood at £15.4 billion.
The ONS noted that this record surplus was further bolstered by increased capital gains tax payments to Her Majesty’s Revenue and Customs (HMRC). Analysts had forecast a surplus of £23.8 billion, which was significantly surpassed.
Public Borrowing Lower Than Expected
Between April and January, total borrowing reached £112.1 billion. This is 11.5% lower compared to the same ten-month period of the previous fiscal year, but it is still the fifth-highest figure for the period since records began.
The Treasury highlighted that borrowing for 2026 is projected to be “the lowest since before the pandemic.” Chief Secretary to the Treasury, James Murray, commented that reducing debt interest remains a priority, stating, “We will more than halve borrowing by 2030-31 so that money can be spent on policing, schools and the NHS.”
Debt Levels and Treasury Response
Despite the improved borrowing figures, the overall public debt remains elevated. The ONS reported that the debt-to-GDP ratio was 92.9% at the end of January. This level, last seen in the early 1960s, underscores ongoing fiscal challenges.
Spending on debt interest was lower in January, according to the ONS, offsetting higher costs in public services and benefits. The government pointed to this reduction as a positive signal for fiscal sustainability moving forward.
Retail Sales Exceed Forecasts
Alongside positive fiscal data, UK retail sales grew more than anticipated in January. According to the ONS, the volume of goods purchased increased by 1.8%, up from a 0.4% rise in December. This outperformed City economists’ expectations of a modest 0.2% gain.
Growth was particularly strong in sectors such as sports supplements, jewellery, artwork, and antiques. However, some analysts cautioned that seasonal factors, including New Year health resolutions, may have temporarily boosted these figures.
Economic Outlook and Analyst Commentary
Paul Dales, chief economist at Capital Economics, remarked that the reduction in public borrowing and the significant increase in retail sales contributed to “evidence that the economy started the year looking a lot healthier.”
Dales observed that a freeze on income tax thresholds had generated an additional £3.6 billion compared with the previous year, while capital gains tax receipts saw a £17 billion surge.
He warned, however, that the boost in retail spending may prove short-lived, particularly as wage growth slows and unemployment reaches a five-year high.
Final Summary
In summary, the UK government’s public finances performed better than anticipated in January, with a record surplus driven by robust tax receipts and reduced borrowing. Debt levels remain high, yet recent trends in interest payments and year-on-year borrowing suggest modest improvements.
Retail sales also exceeded forecasts, though analysts caution the sustainability of such growth. As policymakers prepare for the Spring Statement, the interplay between fiscal discipline, economic recovery, and public sector investment remains in sharp focus.
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