The UK recorded its highest budget surplus on record, boosted by capital gains tax on asset sales and lower interest costs on debt, easing pressure on the government to control public debt.
On February 20, 2026, at 7:08 AM, Bloomberg News reported that: The United Kingdom recorded its largest monthly budget surplus on record, following exceptionally strong fiscal performance in January driven by surging tax revenues. In particular, capital gains tax on asset sales has decreased, while the interest burden on public debt has also reduced.
Official data released on Friday showed that government revenue exceeded expenditure by £3.04 billion, or about $4.1 billion, in January. This is up from a surplus of £1.45 billion during the same period last year and higher than the £2.4 billion forecast by economists and the Office on Budgetary Responsibility (OBR).
These figures bring the budget deficit for the first 10 months of the fiscal year to £1.121 billion, lower than the OBR's estimate of £1.204 billion, providing a positive boost to Chancellor Rachel Reeves amid efforts to control public debt, which stands at 92.9% of GDP.
In financial markets, the pound weakened slightly by 0.2% to $1.3445 in early London trading, while the yield on 10-year UK government bonds (gilts) fell 3 basis points to 4.34% after investors reacted positively to fiscal data. The figures were released alongside retail sales data showing the fastest growth in 20 months.
January is typically the busiest month of the year for government tax revenue, as taxpayers must settle their outstanding payments from the previous year by the end-of-month deadline. However, this year's revenue was further boosted by companies and individuals rushing to sell assets before the Labour government implemented a capital gains tax in its first budget. This tax alone generated £1.7 billion, an increase of almost £7 billion from the previous year.
Analysts believe that the stronger start to the year in the economy will provide the Finance Minister with a positive platform for his fiscal policy statement on March 3. Meanwhile, increased tax revenue from payroll tax hikes and wage growth is helping to offset pressures on government spending in several areas.
Furthermore, slowing inflation has also helped reduce interest payments on debt. In January, interest payments stood at just £1.5 billion, down from £6.5 billion in the same month the previous year, as a decline in the retail price index reduced the cost of inflation-linked bonds.
Overall, the government is in a better position than targeted under the current budget rules, which require tax revenue to cover recurring expenditures by the end of the decade. This reflects signs of recovery in the UK's fiscal position, although it still faces long-term pressures on public debt.
refer : bloomberg.com
Read news related to All European economic situations can be found here.
