UK Government Borrowing Surges Despite £154 Billion Pound January Surplus

The UK government’s fiscal position remains under pressure despite recording a £15.4 billion surplus in January, falling short of the Office for Budget Responsibility’s £20.5 billion forecast. The shortfall signals mounting challenges for Chancellor Rachel Reeves as she approaches next month’s spring statement.

Public sector borrowing has already exceeded the previous year by £13 billion, with total borrowing for the fiscal year reaching £118.2 billion. The Treasury’s position was notably impacted by a £6 billion deal to repurchase military housing from Annington, finalised in January.

Darren Jones, chief secretary to the Treasury, emphasised the government’s commitment to fiscal discipline, stating they would scrutinise every pound spent to ensure alignment with the country’s priorities. The January surplus, traditionally boosted by self-assessment tax receipts, barely surpassed last year’s £14 billion figure.

The Office for Budget Responsibility is expected to reduce Reeves’ £9.9 billion fiscal headroom, established during the autumn budget. This reduction stems from a combination of economic slowdown, elevated market interest rates, and a deteriorating future outlook.

KPMG’s senior economist Dennis Tatarkov suggests the spring statement may require additional tax and spending adjustments if the chancellor maintains her fiscal targets. The current debt-to-GDP ratio stands at 95.3%, matching levels not witnessed since the 1960s.

The Treasury has indicated that comprehensive fiscal plans will be unveiled in the autumn budget rather than during next month’s statement. However, with mounting pressure on defence spending and weakening tax receipts, Reeves faces increasingly difficult choices to maintain her self-imposed “stability rule” without implementing further tax increases.