Instant view- Jan public finances much worse than expected

LONDON (Reuters) - Britain's public finances turned out much worse than expected in January as government spending shot up and tax receipts fell sharply, the Office for National Statistics said on Thursday.

ANALYST REACTION

JONATHAN LOYNES, CAPITAL ECONOMICS

"January's UK public finances figures are truly dreadful and further underline the need for much more decisive action to improve the fiscal position when the economy is strong enough to withstand it.

"We had expected the normal January surplus to be smaller than last year's, but the outturn has dashed any hopes that the worsening trend in the public finances might finally be easing a bit.

"For now, the markets and credit rating agencies seem prepared not to put the UK in the same category as the fiscally challenged euro-zone economies like Greece. But with the budget deficit heading towards 13 percent of GDP this year, and perhaps exceeding that of Greece, it is clear that a more credible plan to restore the public finances to health will be required shortly after the general election to keep the markets and rating agencies at bay."

GEORGE BUCKLEY, DEUTSCHE BANK

"The government usually runs a budget surplus in January because this is the month that a large portion of the year's income tax is paid.

"The cash surplus in Jan was much lower than expected due to both higher spending (the yoy rate of departmental spending was nearly 15 percent) and a 20 percent fall in income tax receipts from the same month a year ago - the largest annual fall since the start of 1997. However, this was to some extent offset by a downward revision to the December deficit."

AMIT KARA, UBS

"Clearly worse than expected but even with this data it seems that the deficit for the full year will probably come in at about 180 billion pounds which is not too far from the 178 billion pounds forecast by the government."

"If we are right that the economy does recover this year then the deficit should start to improve ... but it certainly calls for the need for austerity after the election."

ANDREW GOODWIN, ERNST & YOUNG

"These are pretty ghastly figures and come as somewhat of a surprise given the smaller overshoots of the past couple of months.

"January usually yields a healthy surplus due to receipts from corporation tax and even in the current climate it is surprising to see the government rack up a deficit. If this overshoot is replicated in February and March then the Chancellor's full year forecast will certainly be under threat.

"These figures emphasise the scale of the fiscal challenge facing the next government. The current HMT forecasts are far too optimistic, both in terms of the speed of recovery and the extent to which tax revenues will recover, and it is clear the major additional tightening will be required."

ALAN CLARKE, ECONOMIST, BNP PARIBAS

"Not a great number for January, but for the fiscal year as a whole it's actually a bit of better news and quite welcome given the emphasis on sovereign insolvency.

"Even when we get to cost-cutting territory further down the road, there will be costs associated with redundancy etcera, which will make it a little bit harder to get the deficit down very quickly.

"Not a great number, but it could have been a lot worse."