LONDON, Feb 20 (Reuters) - Britain's public finances recorded a record monthly surplus of 30.4 billion pounds ($40.9 billion) in January, official figures showed on Friday, in a boost for finance minister Rachel Reeves ahead of a fiscal update on March 3.
The surplus topped all economists' forecasts in a Reuters poll as well as the 24.1 billion pounds expected by the government's Office for Budget Responsibility, due to strong income tax and capital gains tax revenue and lower debt interest payments.
January usually sees a surplus as annual income tax bills fall due.
"We know there is more to do to stop one in every 10 pounds the government spends going on debt interest, and we will more than halve borrowing by 2030-31," Chief Secretary to the Treasury James Murray said.
UK BORROWING RUNNING BELOW LATEST OBR FORECAST
From the start of the financial year in April 2025, British public borrowing totalled 112.1 billion pounds, the Office for National Statistics said, down by 11.5% from the first 10 months of the 2024/25 financial year.
This is below the forecast of 120.4 billion pounds from the Office for Budget Responsibility, which predicts a total deficit of 138.3 billion pounds or 4.5% of national income for 2025/26.
However, at the start of the financial year, the OBR had forecast the government would be able to reduce borrowing to 3.9% of gross domestic product.
The OBR is due to release new growth and borrowing forecasts on March 3, when Reeves hopes the greater fiscal headroom she created in November's annual budget will be enough - unlike last year - to avoid the need for a mid-year change in fiscal policy.
Reeves has said she wants to hold only one major fiscal event a year and, from this year onwards, the OBR will not formally judge if the government is on track to meet its goals at the mid-year assessment that usually takes place in March.
Britain's government aims to stop funding day-to-day public spending with borrowing by 2029/30.
Dennis Tatarkov, senior economist at KPMG UK, said that the OBR's weak March forecast was likely to show that Reeves' margin to hit this target had become narrower.
"The chancellor's headroom has already likely diminished by 3 billion pounds in the three months that have passed since the Budget. Weaker-than-expected growth in the second half of 2025 has shaved off an estimated 6 billion from the nearly 22 billion pounds of buffer, partially compensated by lower interest rates," he said.
Much of Britain's borrowing costs is linked to inflation, and the public finances have benefited from an ongoing fall in the rate of retail price inflation, the ONS said.
($1 = 0.7439 pounds)
Reporting by David Milliken; Editing by Kate Holton and Kevin Liffey
Source: Reuters