The FINANCIAL — A boost in income tax receipts in January led to the strongest U.K. government budget surplus in seven years, a sign the outgoing coalition is likely to meet its fiscal targets ahead of the general election in May, according to Nasdaq.
The British public sector–excluding public-sector banks–posted a surplus of GBP8.8 billion ($13.5 billion) during the month, the Office for National Statistics said on February 20.
January is a key stepping stone for the health of public finances, as corporate and self assessment tax receipts peak during the month. Although the surplus was slightly smaller than expected–economists polled by The Wall Street Journal forecast a GBP9 billion figure–this was still the best January for government coffers since 2008.
Accounting for the fiscal year, which runs from April to March, the U.K. public sector borrowed GBP74 billion, GBP6 billion less than during the same period a year earlier, according to Nasdaq.
This provides some relief to the coalition government, which has made fiscal discipline a key issue in the campaign for what is looking to be a closely fought general election in May. Income tax receipts, which were depressed throughout 2014 due to weak wage growth, were the highest since records began in 1997, the ONS said.
U.K. Treasury chief George Osborne has pledged to curtail the government’s budget deficit. To appear on track to meet his fiscal targets, he is expected to keep borrowing close to official forecasts. The Office for Budget Responsibility, the U.K.’s independent fiscal watchdog expects public borrowing to be GBP91.3 billion for the fiscal year ending March 2015. The government has borrowed 81% of that amount, with two months remaining.
Evidence that the economic recovery has finally reached households after a five-year-long squeeze on living standards also raises hopes the British economy will have a bumper first quarter in 2015. Fatter paychecks and low inflation drove consumers to ramp up spending in January, official figures suggested, according to Nasdaq.
Retail sales rose 5.4% year-over-year during the month. Volumes sold by British stores have increased on an annual basis every month for almost two years, the longest period of sustained growth since may 2008, the ONS said. However, sales still fell 0.3% compared with December, dropping after the Christmas season.
The ultralow price of oil and other commodities is a boon for stores and households in the U.K., as it pushes down costs for retailers while at the same time boosting the purchasing power of consumers. Average store prices fell 3.1% in January, according to official figures, the largest drop on record.
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