Chancellor given Budget headache as surplus shrinks in biggest tax month of the year

The budget surplus narrowed sharply in the biggest tax month of the year for the Government as rising debt costs hit the public finances.

The Treasury recorded a surplus of £5.4bn borrowing in January, which was far better than economists’ predictions of £7.bn of net borrowing for the month.

The Government usually runs a surplus in January as workers and companies settle tax bills.

However, the surplus was £7.1bn smaller than at the same time a year ago.

Public borrowing stood at £27.4bn in December as the Government ploughed billions more of taxpayer cash into its subsidies for household bills and dealt with soaring debt interest payments.

Government debt has continued to surge after the decision in October to subsidise energy bills so that typical households pay no more than £2,500 annually.

From April, the state will lower its support, raising the cap on bills to £3,000.

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07:07 AM

Good morning

Public sector borrowing figures have given the Chancellor a boost as he prepares to deliver his Budget next month.

The Government managed a surplus of £5.4bn in January, well ahead of economists’ expectations of a £7.9bn deficit.

However, the surplus was £7.1bn smaller than at the same time a year ago.

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What happened overnight

Asian shares were mostly lower in quiet trading after US markets were closed for Presidents Day.

Shares dropped in Tokyo, Sydney and Hong Kong but rose slightly in Seoul and Shanghai.

Analysts say worries about weakening demand persist in Asia, as companies cope with rising energy and raw material costs and consumers hold back on spending.

In Japan, a preliminary manufacturing indicator, the flash purchasing manager’s index, fell to 47.4 in February from 48.9 the month before. That was the weakest reading in more than two years.

Stocks in Tokyo closed lower, with the benchmark Nikkei 225 index losing 0.2pc to 27,473.10, while the broader Topix index fell 0.1pc to 1,997.46.

The latest data from Australia, called the Judo Bank PMI, showed private sector activity remained in contraction for the fifth straight month.

Australia’s S&P/ASX 200 slipped 0.2pc to 7,336.30. South Korea’s Kospi gained nearly 0.2pc to 2,458.72. Hong Kong’s Hang Seng dipped 1.6pc to 20,561.77, while the Shanghai Composite gained 0.1pc to 3,294.37.

In the currency markets, the dollar was flat, after a three week rally. Treasury futures, which did trade Monday, fell slightly.