Boost for Osborne as level of borrowing takes a drop

The best month for the public finances in four years offered some breathing space for Chancellor George Osborne today, a week after ratings agency Moody's threatened to strip the UK of its prized AAA rating.

January's figures showed a surplus of £7.8bn – well above the £5.2bn recorded a year ago – thanks to higher receipts and a drop in local government borrowing. Tax receipts hit £60.9bn – the highest since Office for National Statistics records began in 1998.

Although January is usually a strong month for Treasury's coffers due to self-assessment returns and corporation tax receipts, with 10 months of the financial year gone borrowing is £15.7bn down on last year at £93.5bn. Total debt also dropped back temporarily below the £1trn mark.

The performance paves the way for the Chancellor to deliver some better news in the Budget as borrowing falls below the Office for Budget Responsibility's £127bn forecast for the current year, perhaps by as much as £10bn.

Chris Williamson, chief economist at financial information firm Markit, said: "That undershoot may provide Mr Osborne with some leeway to seek ways to stimulate economic growth in the Budget."

The cheer comes after Moody's said there was a one in three chance of a downgrade over the next 18 months, blaming the UK's high debt, lower growth prospects and the potential impact of the eurozone crisis.

And some analysts also warned yesterday that an economic shock from the eurozone could still cause a dramatic deterioration in the borrowing figures.

"The longer-term outlook is still very uncertain and the recent strong trends may become increasingly difficult to sustain" said Nida Ali, economic advisor to the Ernst & Young ITEM Club.

"Despite the deal agreed for Greece today, risks from the Eurozone crisis are still a significant threat to growth prospects, and it's possible that the Office for Budget Responsibility's growth forecasts will prove to be too optimistic, despite significant downgrades in November."