More borrowing, less spending: January figures set back recovery

Fall in retail sales and smaller surplus in public finances hits economic targets

The rapid recent momentum behind the UK’s recovery slackened yesterday after the worst January for the nation’s public finances since 2010 as high street sales were swamped by  rainfall.

Borrowing figures for January – a month in which receipts are typically buoyed by self-assessment income tax returns as well as corporation tax takings – recorded a surplus of £4.7bn, lower than the £6bn seen a year earlier, according to the Office for National Statistics.

Retail sales, meanwhile, sank 1.5 per cent over the month – a bigger-than-expected retrenchment from pre-Christmas consumer spending, which economists attributed to the wettest January since records began almost 250 years ago. This year the UK had 51 per cent more rainfall than the January average, and twice as much across the more affluent South-east.

The figures take the gloss off a run of positive economic news including inflation falling below the Bank of England’s 2 per cent target rate for the first time in four years and a sharp upgrade to the Bank’s growth forecasts for this year, to 3.4 per cent.

The smaller surplus in the public finances left borrowing for the 10 months of the financial year so far at £90.7bn, albeit still £3.9bn lower than at the same time last year and on course to meet the Office for Budget Responsibility’s £111bn borrowing target for the financial year.

The disappointing January numbers were driven by lower income tax self-assessment returns as earners deferred tax payments into the current financial year to take advantage of last April’s cut in the top rate to 45 per cent. This, of course, should boost the tax take next January.

Corporation tax takings also fell on lower revenues from North Sea oil and gas, which the OBR put down to production declines and high levels of tax-deductible capital spending. Higher VAT takings and a boost to stamp duty revenues from a resurgent housing market were, however, a positive for the Treasury. Samuel Tombs, an economist at Capital Economics, said: “We suspect that January’s surplus could be revised bigger in time. The public finance figures are not bad enough on their own to rule out a small pre-election giveaway by the Chancellor in the upcoming Budget.”

The decline in retail sales – although worse than expected – was shrugged off by most analysts, who expect the consumer squeeze to finally ease in 2014 as wages move ahead of the cost of living for the first time in  five years. Furniture, do-it-yourself and electrical stores fared better as online shoppers boosted overall sales. But consumers are still digging into their savings to fund spending, with retail sales growth over the year to January – up 4.8 per cent – rising three times as fast as incomes.

The Berenberg economist Christian Schultz said: “As wage growth begins to pick up and inflation falls, the real income squeeze on households should ease. In the meantime, however, the rapid pace of expansion may slow somewhat as households are less likely to reduce their savings rate further as quickly as last year.”

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
Campbell: ‘Sometimes you have to be economical with the truth’
newsFormer spin doctor says MPs should study tactics of leading sports figures like José Mourinho
Sport
football
News
Kelly Osbourne will play a flight attendant in Sharknado 2
people
Life and Style
Alexander McQueen's AW 2009/10 collection during Paris Fashion Week
fashionMeet the collaborators who helped create the late designer’s notorious spectacles
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
The dress can be seen in different colours
i100
Life and Style
Agretti is often compared to its relative, samphire, though is closer in taste to spinach
food + drink
Sport
Wes Brown is sent-off
football
Voices
Lance Corporal Joshua Leakey VC
voicesBeware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?