Economists said the pounds 5.8bn repayment of debt in January, nearly twice as much as expected, might take total government borrowing below its target this financial year. Tax revenues were running ahead of the Budget forecast, while government spending was not growing as fast as many experts had feared.
The Chancellor said: "It shows we are certainly going to hit our target. We might do even better, although I won't count my chickens. We'll wait to see what happens at the end of the year."
The surprise on the government finance front, along with confirmation from the Governor of the Bank of England on Monday that the strong pound meant he was now seeking only a quarter- rather than a half-point rise in interest rates, combined to knock four pfennigs off sterling's exchange rate yesterday. It closed at DM2.7085, while its index against a range of currencies fell 1.2 to 96.8.
Analysts in the City predicted an improvement in the state of the public finances in the coming months. "The outlook is reasonably good with growth so strong," said Kevin Gardiner, an economist at Morgan Stanley.
However, many remain concerned about the Government's financial position. John O'Sullivan at NatWest Markets said: "The recovery started five years ago and the deficit is still falling slowly. Should we not be closer to balance at this stage?"
Liberal Democrat spokesman Malcolm Bruce pressed home the same message. "The reality is that at the moment the public sector borrowing requirement [PSBR] is exceeded by the amount of interest we pay on the national debt," he said.
In an interview on BBC radio, Mr Clarke made clear the Conservatives' hope that the Government's economic record will be a vote-winner.
"If there are people out there who think New Labour or the Liberal Democrats could do better than that, good luck to them. But I actually think when the time comes they will think very carefully about plunging out of where we are now into a risk of that kind," he said.
High tax revenues explained the surprise pounds 5.8bn repayment in January. One element, a surge in VAT receipts, was expected after a lower-than- normal figure in December. The payment on account system is leading to a concentration on VAT payments into the first month of each quarter.
Even so, growth in VAT revenues has been 15 per cent in the financial year to date, in contrast to the unaccountably low receipts the previous year.
Corporation tax revenues, which are always strongest in October and January, were a little better than the Treasury had expected. They are up nearly 11 per cent year-on-year and have already overtaken the full-year forecast contained in November's Budget.
Comment, page 19