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Lower tax receipts reduce Britain's surplus

Lower income tax and corporation tax receipts dragged Britain's public finances to a much smaller than usual seasonal surplus in January, as Chancellor George Osborne prepares his annual budget.

Strong performance earlier in the financial year means Osborne still looks on track for public sector net borrowing, excluding financial sector interventions and some other one-off effects, to fall broadly as forecast in December.

But the figures mean Osborne is unlikely to have any large windfall to play with just over a year before national elections in May 2015.

Other figures released by the Office for National Statistics (ONS) yesterday showed an unexpectedly sharp fall in retail sales in January, which suffered their biggest monthly decline since April 2012 after a strong December.

Sales were 1.5% down on the month and just 4.3% up on the year - both weaker than expected. The ONS said weak supermarket sales were the main driver of the decline, and clothes sales dropped sharply too.

British government bond futures fell to a session low after the data, which follows an unexpected fall in inflation and rise in unemployment earlier in the week.

"Official predictions for the annual deficit still look achievable, but nothing better," said James Knightley, UK economist at ING.

Mr Knightley played down the significance of the fall in retail sales, noting it came after a strong December and wet weather in January.

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