British income tax receipts jumped in January to produce the biggest monthly surplus in seven years, but Chancellor George Osborne still faces a big challenge to meet his borrowing targets before national elections in May.

The Office for National Statistics reported a January public finance surplus excluding banks of £8.8 billion, up 35 per cent from a year earlier, but slightly short of a forecast surplus of £9 billion in a Reuters poll.

January is usually a surplus month, due to self-assessment tax return receipts. This year, those figures were boosted by delayed payments of bonuses in the 2013/14 tax year. Income tax and capital gains tax revenues rose by 6.1 per cent compared with a year earlier.

Deficit reduction has been the key economic policy of the Conservative-led government since it came to power in 2010, but progress in cutting the budget gap has been slow in the current financial year.

Borrowing for the first 10 months of the tax year fell to £74 billion, down 7.5 per cent compared the same point last year.

December’s budget forecasts envisaged 2014/15 borrowing falling by 6 per cent to £91.3 billion, equivalent to 5.1 per cent of gross domestic product.

Britain’s ruling Conservative Party hopes a rapid economic upturn since mid-2013 will encourage Britons to return them to power.

Separate data showed retail sales volumes fell 0.3 per cent on the month in January compared with a rise of 0.2 per cent in December, and rose 5.4 per cent compared with a year earlier. Economists polled by Reuters had expected to see retail sales fall 0.2 per cent on the month, but rise 5.9 per cent on the year.

Retail sales rose strongly in the last two months of 2014, boosted by Britain’s first major round of US-style Black Friday sales in November, and as shoppers bought more fuel in December on the back of falling oil prices.

Wages are showing some signs of recovery after growing by less than inflation for much of the period since the financial crisis, and consumer prices are barely rising, boding well for spending power this year.

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