U.K. January Public Finances Improve Markedly

U.K.'s public finances improved more than expected in January, logging the highest monthly budget surplus since 2008. The data suggests that the country will meet or even undershoot its budget targets despite headwinds from the economic front.

Public sector net borrowing excluding interventions showed a surplus of GBP 7.75 billion in January, which was GBP 2.5 billion lower net borrowing than in January 2011, the Office for National Statistics said in a report on Tuesday.

The January figure, which is the biggest since January 2008, was even stronger than GBP 6.3 billion expected by economists.

In December, the deficit was GBP 14.02 billion. The government usually receives the highest amount in tax receipts in January.

The year-to-date budget deficit was GBP 93.5 billion, raising chances of meeting the GBP 127 billion deficit targeted by the government for the whole year.

Nonetheless, Chancellor George Osborne will be under no illusions of the difficulties he still faces on the economic growth and public finances fronts, and he knows full well that he has limited room for manoeuvre in March's budget and very little scope for give-aways, said IHS Global Insight's Chief UK economist Howard Archer.

Rating agency Moody's lowered the outlook on U.K.'s 'AAA' rating to 'negative' earlier this month. The agency said the increased uncertainty regarding the pace of fiscal consolidation in the U.K. due to materially weaker growth prospects over the next few years is the main factor behind the outlook downgrade.

ING Bank NV's economist James Knightley still sees risk of slippage on the numbers given tax revenues are unlikely to be as strong as hoped, while government spending could rise on the back of higher welfare payments.

Net borrowing including interventions revealed a surplus of GBP 10.7 billion in January compared to GBP 8 billion excess in the previous year.

Excluding financial interventions, the public sector current budget surplus rose to GBP 11.8 billion from GBP 9.2 billion in January 2011. The central government net cash requirement was -GBP 16.3 billion, a GBP 0.8 billion higher net cash requirement than in January 2011.

Public sector net debt at the end of January totaled GBP 988.7 billion or 63 percent of GDP. This compares to GBP 869.1 billion or 58.3 percent of GDP at the end of January 2011. (Provided by RTTNews)