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Hammond on track after record surplus boost

Chancellor Philip Hammond looks on course to meet his first Budget deficit target – easing the pressure for a fiscal squeeze – after public finance figures showed a record surplus last month.

It could leave Mr Hammond with “wiggle room” to provide some modest help to squeezed households or the NHS, one economist suggested.

Figures from the Office for National Statistics (ONS) revealed that Government revenues exceeded spending by £9.4bn, underlining the economy’s robust response to the Brexit vote.

January is traditionally a strong month for the public finances as the Treasury tots up receipts from self-assessment, capital gains tax and corporation tax.

The latest monthly surplus was £300m higher than the same month last year.

It fell short of economists’ expectations of £13.8bn but it was distorted by changes in the way the ONS accounts for corporation tax revenue.

Under the previous method, the surplus would have been £15.2bn, the highest since records began in 1997.

Mr Hammond is aiming to bring the UK‘s annual borrowing down to £68bn for the year to the end of March – and now looks on course to achieve it.

The latest figures – which exclude the impact of state-backed banks – mean that for the first 10 months of the financial year, borrowing stood at £49bn, down 22% on a year earlier.

It is the lowest year-to-date borrowing total over this period since 2008.

But the figures still mean that the overall debt is growing. It climbed £92bn to £1.68tr, equivalent to 85.3% of the UK‘s gross domestic product.

The independent Office for Budget Responsibility (OBR) will deliver updated public finance targets at the time of Mr Hammond’s first Budget in a couple of weeks.

Its latest target for 2016-17 borrowing of £68bn is bigger than the £55bn predicted prior to the EU referendum.

Scott Bowman, UK economist at Capital Economics, said borrowing now looked on track to come in about £10bn short of the OBR’s latest figure, “giving Chancellor Hammond some room to ease back on the fiscal squeeze or reduce the deficit at a faster rate”.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “This potentially gives the Chancellor some wiggle room in the Budget.”

He said there was unlikely to be a “significant change of tack” by the Chancellor.

“However, he could choose to provide some modest help to households, particularly the worse off, as purchasing power is increasingly squeezed by rising inflation.

“Or he could decide to give limited extra money to the NHS.”

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