Britain posted the biggest budget surplus in four years in January, increasing pressure on Chancellor of the Exchequer George Osborne to provide some stimulus for the economy in his budget next month.
Revenue exceeded spending by £7.75 billion ($12.3 billion), compared with a surplus of £5.2 billion a year earlier, the Office for National Statistics said on Tuesday in London. The median of 10 forecasts in a Bloomberg News survey was £6.3 billion. January is the biggest tax-collection month of the year.
Osborne is refusing to bow to pressure from opposition politicians to relax his fiscal squeeze to promote growth when he presents his annual budget on March 21. Moody’s Investors Service said last week that while the UK’s Aaa rating was at risk from the crisis in Europe, the government’s commitment to deficit reduction supported the top grade.
“Together with the recent pick-up in the economic data, this might help the chancellor to claim at next month’s budget that his Plan A is still working,” Capital Economics Ltd. Chief UK Economist Vicky Redwood said. “We still think that borrowing will be much harder to pull down further ahead once economic growth slows.”
The pound was trading at $1.5810 as of 12:09 pm in London, down 0.3 per cent on the day. The benchmark 10-year government bond yield was little changed at 2.23 per cent.
European stocks fell from a six-month high amid speculation a Greek bailout deal reached overnight won’t be sufficient to solve the nation’s debt crisis.
European finance ministers approved a 130 billion-euro ($173 billion) bailout package for Greece early today by tapping into European Central Bank profits and convincing investors to provide more debt relief to prevent the nation defaulting.
Bondholders’ response to the swap and parliamentary approvals in some European countries loom as risks to the deal.
The Stoxx Europe 600 Index lost 0.7 percent, its first decline in five days, and the MSCI Asia Pacific Index slipped 0.4 percent.
The UK budget figures showed that receipts rose 2.8 per cent in January from a year earlier. The government receives a fifth of all taxes on company profits and gets final payments of income tax for the previous fiscal year in January. In the first 10 months of the fiscal year, the deficit narrowed to £93.5 billion from £109.1 billion. Government revenue increased 4.7 per cent and spending grew 1.6 per cent.
The data raise the possibility that borrowing in the fiscal year through March will come in below the £127 billion forecast by the Office for Budget Responsibility in November, giving Osborne limited leeway to offer tax incentives in the budget, said Chris Williamson, chief economist at Markit.
“Our credible deficit plan is working,” the Treasury said in an e-mailed statement. It is “keeping interest rates at record lows for families and businesses and helping to support the recovery.”
Ed Balls, who speaks for the opposition Labour Party on economic matters, called on Feb. 19 for Osborne to lower sales tax to aid the economy. The Institute for Fiscal Studies said Feb. 1 lower borrowing could give the chancellor room to safely implement a “significant” fiscal stimulus to support growth.
While gauges of manufacturing and services improved in January, the economy shrank 0.2 percent in the fourth quarter and the Bank of England forecasts only a “gradual” recovery this year.
Australia’s central bank said it has scope to ease monetary policy if needed, minutes of its Feb. 7 meeting released today showed. Elsewhere, Hong Kong said its unemployment rate fell to 3.2 per cent in January from 3.3 percent in December.
In Europe, Switzerland’s trade surplus narrowed in January and a Danish consumer confidence index rose. Turkey’s central bank kept its one-week repo rate at a record low of 5.75 per cent, maintaining the floor of the interest-rate corridor it’s using to slow inflation while supporting growth.