In line with the usual seasonal pattern, overall public sector net borrowing (PSNB) fell sharply in January. Indeed, following a downwardly revised £24.82 billion deficit in December, last month saw an unexpected surplus of £6.24 billion on the back of record tax inflows. Even so, this was still well short of the £13.33 billion of black ink posted a year ago. Excluding public sector banks (PSNB-X), the surplus was £5.42 billion versus £12.51 billion in January 2022.

Of note, central government debt interest was £6.7 billion, the highest January reading on record and largely reflecting the effect of rising inflation on index-linked gilts. This contributed to public sector net sector debt of some £2,492.1 billion or around 98.9 percent of GDP, a level not seen since the early 1960s.

While healthier than expected, today's update again underlines the task facing the government as it tries to get its fiscal house in order. Still, it also puts the UK ECDI at minus 9 and ECDI-P at 6, both measures being close enough to zero to signal no major surprises in overall economic activity.

Overall net borrowing is put at £2.2 billion, down sharply from 26.58 billion in December.

The public sector net borrowing requirement (PSNB) is the difference between the sector's receipts and expenditure and so provides a simple measure of government fiscal policy. In response to the global economic crisis in 2008/09 the UK government introduced a number of measures designed to show the underlying state of public sector finances by omitting temporary distortions caused by financial interventions. It bases its fiscal policy on these measures. To this end, the underlying gauge of government borrowing watched most closely by financial markets is the PSNB-X which takes overall net borrowing (PSNB) but excludes public sector banks.

Changes in public sector finances can be used to determine the thrust of the government's fiscal policy. Generally speaking when the government has a rising deficit (or falling surplus) it is loosening its fiscal stance with a view to boosting economic activity. When its deficit is falling (or surplus rising), fiscal policy is being tightened in order to slow economic growth. However, sometimes changes in government financial positions can be due to factors outside of the government's control and do not signal an explicit shift in policy. This means that great care is needed in interpreting the data.