By Daniel Hunter
According to Nida Ali, economic advisor to the Ernst & Young ITEM Club, today’s (Tuesday) public sector finances data is very encouraging.
The data showed that the government received more money than it spent in January leaving it with its highest monthly surplus in four years.
“Today's figures were crucial in assessing whether the government's targets for 2011/12 will be met, and they haven't disappointed," Ali said.
"Earlier year-on-year comparisons had been flattered by the impact of a higher VAT rate but, despite this falling out of the year-on-year calculation in January, the surplus on the net borrowing measure was still more than £2bn higher than a year earlier. This was helped by strong growth in corporation tax receipts, which were up 15% on a year ago.
“If borrowing continues to undershoot at the rate it has done over the first ten months, total borrowing will come in as low as £117bn for 2011/12. But even if there is no improvement in the next two months compared to a year earlier, the total for the financial year as a whole will be £120bn. The government is well on track to beat the OBR's target of lowering net borrowing to £127bn this financial year. This will give the Chancellor a much-needed head start for 2012/13.
“However, the longer-term outlook is still very uncertain and the recent strong trends may become increasingly difficult to sustain. Despite the deal agreed for Greece today, risks from the Eurozone crisis are still a significant threat to growth prospects, and it’s possible that the OBR's growth forecasts will prove to be too optimistic, despite significant downgrades in November. This will have adverse implications for the public finances and, though the recent strength of the public finances means that this is unlikely to have much of an impact on next month’s Budget, the Chancellor could still find that there are more uncomfortable decisions to be made.”
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