The UK government recorded the largest monthly budget surplus in its history in January, posting a surplus of £30.4 billion. This marks the highest figure since records began in 1993 and represents a sharp turnaround from December’s £11.6 billion deficit. The result was also significantly stronger than the £24 billion forecast by the Office for Budget Responsibility (OBR) and market economists, giving Chancellor Rachel Reeves a timely boost ahead of next month’s Spring Statement.
The improvement was largely driven by a surge in tax revenues, particularly capital gains tax and self-assessment receipts. Capital gains tax generated £17 billion in January alone — nearly £7 billion more than a year earlier — as many individuals sold assets ahead of an expected tax increase in the 2024 Autumn Budget. Meanwhile, self-assessment tax receipts reached £29.4 billion. The continued freeze in income tax thresholds since 2022 has also gradually pushed more taxpayers into higher brackets due to inflation.
As a result of this strong performance, the budget deficit for the first 10 months of the fiscal year narrowed to £112.1 billion, below the OBR’s £120.4 billion projection. This suggests that full-year borrowing could come in roughly £10 billion lower than previously expected. In addition, government debt interest payments fell to £1.5 billion in January — around £5 billion less than a year earlier — partly due to lower inflation-linked costs.
Despite the record surplus, economists caution that the UK’s public finances remain under pressure. Total borrowing for the fiscal year is still expected to reach around £130 billion. Economic growth remains sluggish, with GDP expanding by just 0.1% in the final quarter of last year, while unemployment has climbed to 5.2%. Although inflation has eased to 3%, raising hopes of potential rate cuts, public debt remains elevated at 92.9% of GDP.
Overall, the record January surplus provides a positive headline for the government and signals some short-term fiscal improvement. However, structural economic challenges and high debt levels remain significant concerns. Sustained progress will depend on stronger growth, disciplined spending, and continued stability in inflation and interest rates.
The record budget surplus could provide short-term support for the British pound, as it signals improved fiscal performance. Lower borrowing reduces immediate pressure on government finances and may lessen expectations of aggressive monetary easing. However, weak economic growth and high debt levels may limit sustained GBP strength. Ultimately, the pound’s trajectory will depend on upcoming inflation data and Bank of England policy decisions.
