UK swings to record budget surplus in January while retail sales surge

UK economyAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTUK swings to record budget surplus in January while retail sales surgeImprovement in public finances helped by higher self-assessed income tax and capital gains tax receipts Last November’s Budget included £26bn of tax rises and followed the £40bn announced in chancellor Rachel Reeves’ first Budget in 2024 © Inkdropcreative/DreamstimeUK swings to record budget surplus in January while retail sales surge on x (opens in a new window)UK swings to record budget surplus in January while retail sales surge on facebook (opens in a new window)UK swings to record budget surplus in January while retail sales surge on linkedin (opens in a new window)UK swings to record budget surplus in January while retail sales surge on whatsapp (opens in a new window) Save UK swings to record budget surplus in January while retail sales surge on x (opens in a new window)UK swings to record budget surplus in January while retail sales surge on facebook (opens in a new window)UK swings to record budget surplus in January while retail sales surge on linkedin (opens in a new window)UK swings to record budget surplus in January while retail sales surge on whatsapp (opens in a new window) Save Valentina Romei in LondonPublishedFebruary 20 2026UpdatedFebruary 20 2026Jump to comments sectionPrint this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK swung to a record monthly budget surplus in January helped by higher tax receipts, as separate figures published on Friday showed both retail sales and growth in private sector activity picked up. The data releases come as the government remains under pressure to deliver on its pledge to grow the economy, following a lacklustre expansion in the second half of last year. The £30.4bn surplus was double that posted in January last year and the highest for any month since records began in 1993, the Office for National Statistics said.Self-assessed income tax and capital gains tax receipts were £46.4bn in January, when the deadline for tax bills falls, £10.5bn higher than in the same month in 2025, according to ONS estimates. CGT receipts topped £17bn, up £7bn from January 2025 and above forecasts from the Office for Budget Responsibility, as some people sold assets ahead of the 2024 Budget in anticipation of higher CGT rates. Separate ONS data showed that retail sales rose 1.8 per cent in January, the largest monthly increase since May 2024 and ahead of the 0.2 per cent rise expected by economists. Growth in activity in the manufacturing and services sector also edged up in February to the highest level since April 2024, according to the S&P Global Flash UK PMI composite output index.The figures come after official data showed the economy grew by just 0.1 per cent in the third and final quarters of 2025. The unemployment rate hit a post-pandemic high of 5.2 per cent in December, with youth unemployment rising to 16.1 per cent, the highest in more than a decade. Paul Dales, economist at consultancy Capital Economics, said the improvement in the public finances and stronger retail sales suggested that the economy “started the year looking a lot healthier”. The data would “give the chancellor something positive to point to” in the Spring Statement on March 3, he added.UK borrowing costs fell following the higher than expected surplus, with yields on the 10-year gilt down 0.02 percentage points to 4.36 per cent, close to their lowest level in more than a year. Yields move inversely to prices.Pooja Kumra, a rates strategist at TD Securities, said the figures were a “win for gilts” because they indicated that the government would need to borrow less than expected in the next fiscal year.

Chancellor Rachel Reeves is not expected to announce any major measures in the Spring Statement following two tax-raising Budgets since Labour returned to office in 2024.Last November’s Budget included £26bn of tax rises and followed the £40bn announced in Reeves’ first Budget in 2024, raising the overall tax burden to a record high of 38 per cent of GDP by the end of parliament.January’s surplus was £6.3bn above a November forecast from the Office for Budget Responsibility, the UK fiscal watchdog.Grant Fitzner, ONS chief economist, said that in January “revenue was strongly up on the same time last year, while spending was little changed, due to lower debt interest payments largely offsetting higher costs on public services and benefits”. In the first 10 months of the fiscal year that began in April, government borrowing was £112.1bn, according to the ONS, £14.6bn below the same period in the previous fiscal year. The figure was also below the OBR’s forecast of £120.4bn for the period.Martin Beck, economist at consultancy WPI Strategy, said ministers were on track to undershoot the OBR’s borrowing forecast of £138.3bn for the current fiscal year by about £10bn, in “a positive for a government trying to maintain fiscal credibility amidst recent political turbulence”.But he added: “In absolute terms, borrowing on course to reach around £130bn this year is worrisome.” The OBR will deliver its latest forecasts for economic growth and the public finances alongside the Spring Statement.Unlike in previous years, the OBR will not deliver an assessment on whether the government is on track to meet its fiscal rules but instead make a judgment at the next Budget.Retail sales in January were boosted by higher sales of artwork, antiques and jewellery, taking overall sales volumes back to their February 2020 pre-pandemic levels for the first time since early 2022.The PMI showed a solid rise in output across manufacturing and services in both January and February, with the rate of expansion gaining pace to 53.9 in the second month of the year, well above the 50 figure that indicates a majority of businesses reporting growth. But despite enjoying higher demand for goods and services, businesses continued to report steep job losses, particularly in services, according to the report. The Bank of England held interest rates at 3.75 per cent in February as it signalled that a further reduction could come as soon as March.Chris Williamson, chief business economist at S&P Global Market Intelligence, said modest price pressures indicated by companies in the PMI survey, together with concerns about the jobs market, would probably add to calls for more rate cuts. Additional reporting by Ian Smith in LondonReuse this content (opens in new window) CommentsJump to comments sectionPromoted Content Follow the topics in this article UK retail sales Add to myFT UK public finances Add to myFT UK economy Add to myFT Valentina Romei Add to myFT Comments