U.K. Government Had Record Budget Surplus in January -- Update

By Paul Hannon

The U.K. government's traditional January budget surplus rose to a record high, a sign that the rise in its debt has started to slow as Treasury chief Rachel Reeves prepares to deliver a twice-yearly report on the public finances to lawmakers.

The Office for National Statistics on Friday said the government's tax revenues exceeded its spending by 30.4 billion pounds ($40.93 billion) in January, 15.9 billion pounds greater than the surplus recorded a year earlier and the largest since records began in 1993.

Government tax revenues and spending vary widely depending on the time of year. January is a month in which Britons pay self-assessed taxes on their incomes and gains from investments, and that usually results in a surplus. The ONS said revenues from self-assessed taxes were 46.4 billion pounds, up 10.5 billion pounds from January 2025 and a record high.

This January's surplus brought total borrowing for the first 10 months of the fiscal year to 112.1 billion pounds, 14.6 billion pounds below the total for the same period last year and 8.3 billion under the Office for Budget Responsibility's forecast after the tax and spending measures announced in the government's November budget statement.

The narrower deficit during the year to date was partly due to an increase in revenues following the government's decision to increase a tax on employment from April as well as higher self-assessed revenues last month.

A decline in the costs of paying interest also helped. The ONS said interest payments totaled 1.5 billion pounds, down 5 billion pounds from a year earlier and the lowest monthly figure since March 2020.

That reflected the decline in inflation during the final months of 2025, since the government has sold a large amount of bonds with interest payments linked to the Retail Price Index.

Yields on government bonds--which are known as gilts--fell after the budget, which reassured investors that the government was committed to sticking to its self-imposed budget rules, which require that day-to-day spending is paid for out of tax revenues, rather than borrowing, by the fiscal year ending March 2030.

Over time, higher yields translate into increased interest costs for the government as new bonds replace maturing securities.

The ONS said that the current budget surplus, which measures the gap between day-to-day spending and revenues, was 40.9 billion pounds in January. For the year to date, the deficit was 3.4 billion lower than that projected by the OBR.

Yields rose earlier this month as investors worried that a successor to Prime Minister Keir Starmer would place less emphasis on sticking to the self-imposed rules. But as the immediate threat to his position appeared to pass, yields have fallen back.

Expectations that the Bank of England will lower its key interest by more than previously anticipated in the first half of this year have helped drive gilt prices up and yields down. Data released earlier this week recorded a continued rise in unemployment and a decline in inflation, while the outlook for economic growth remains weak.

"Political volatility remains a risk, but we remain positive on gilts as we believe there remains potential for the BOE to ease policy more than the market currently expects," said James Bilson, a bond strategist at Schroders.

In a departure from recent practice, Reeves has said that her March 3 statement to lawmakers will not contain any new tax and spending measures, a shift toward having only one set of announcements towards the end of each year.

Economists view the frequent changes in tax and spending policy over recent years as a source of uncertainty for British businesses and households that has held back investment and spending, a consequence of what many see as a flawed set of fiscal rules.

"Whenever the macro forecast changes, that feeds straight away into policy changes," said Ben Zaranko, associate director at the Institute for Fiscal Studies. "Policy is made in a rush and it's too fine-tuned."

In a separate release, the ONS said retail sales were up 1.8% in January from the previous month, a stronger-than-expected outcome driven by sales of artworks and antiques.

Write to Paul Hannon at [e-mail]

(END) Dow Jones Newswires

02-20-26 0308ET