(RTTNews) - The UK public sector current budget ran up a surplus of GBP 8.4 billion in January 2009, the Office of National Statistics, ONS, said Thursday. This was GBP 7.0 billion lower than the same period of the previous year when the surplus was GBP15.3 billion.

In January, the public sector net borrowing was a negative GBP3.3 billion compared to the higher net borrowing of a negative GBP13.9 billion in the same period of the earlier year. Public sector net cash requirement was a negative GBP 25.1 billion in January, while public sector net cash requirement was a negative GBP 25.2 billion in the same period last year. Since the cash measure could be misleading due to timing factors it is better to analyze other accruals-based statistics, the ONS said.

The Public sector net debt jumped to 47.8% of GDP in January to GBP 703.4 billion. Public sector net debt was GBP 607.8 billion in the same prior period or 42.2% of GDP.

“The public finances continue to deteriorate at an alarming rate. January is an important month for tax receipts so to record a surplus, which was just a quarter of that achieved last January, highlight the severity of the situation. We expect the Chancellor to be forced to make significant upward revisions to his borrowing projections when he presents the Budget,” Andrew Goodwin Senior Economic Advisor to the Ernst & Young ITEM Club said in a note.

For the financial year to date, from April 2008 to January 2009, the public sector current budget deficit was GBP 42.5 billion, while the deficit in the same period of the earlier year was GBP 7.0 billion. Public sector net borrowing was GBP67.2 billion, while the public sector net borrowing was lower GBP23.1 billion in the same prior period. Similarly, the public sector net cash requirement was GBP20.1 billion, higher than the net cash requirement of GBP 8.5 billion in the April to January period of the previous year.

The lower budget surplus in a month when nearly a tenth of the annual revenue is raised revealed the effect of the slowing economy, according to economic experts. Tightening in the financial sector and the precipitous decline in housing prices were pulling the economy down. In fact, the UK was facing the worst recession in sixty years, BNP Paribas said. Further, the outlook for manufacturing in February had deteriorated sharply to a thirty year low, according to BNP Paribas. There were sharp declines in orders, particularly in the automobile and construction industry. The situation in the manufacturing sector could worsen further in the coming months, as entrepreneurs tried to bring output and stocks in line with weaker demand, the BNP Paribas observed.

The government’s strategy to manage the crisis has been to improve the functioning of financial markets, while trying to keep up the demand for goods and services. The Treasury had already come up with fiscal stimulus packages to prop up demand and the economy. However, the cost of the rescue plans targeted at the various industry segments and at the economy as a whole was not clear, the BNP Paribas pointed out. The government deficits in 2009 and 2010 were likely to surge to 10% of GDP. Indeed total Government debt could increase to 70% of GDP by 2010, BNP Paribas cautioned.

A positive development was the continued weakening of inflation to 2.7% in January. In this scenario the UK had to take firm steps to boost the economy and promote exports to take advantage of the depreciating pound, economists said.

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