Mixed signs on economy greet Brown's Budget

THERE WAS mixed economic news in the hours before Gordon Brown's first full Budget. On the one hand the Government repaid pounds 1.9bn of the national debt last month, a record repayment for a February. On the other, the underlying inflation rate crept up to 2.6 per cent, above the 2.5 per cent target it had touched for just one month.

The figures had little impact on the financial markets, where all judgement was suspended ahead of the Chancellor's speech. Analysts said today's figures on average earnings and retail sales would be more important in the Bank of England's calculations over interest rates.

The unexpected repayment of debt, in contrasted to an expected pounds 2bn borrowing requirement last month, highlighted the healthy position of the government's finances. In the first 11 months of the financial year 1997/98 the government repaid pounds 1.7bn excluding privatisation proceeds and the windfall tax, compared to an underlying Public Sector Borrowing Requirement of pounds 18.1bn at the same stage last financial year.

Adding in the windfall tax and privatisation receipts, the repayment in March to February amounted to pounds 6bn, compared with a pounds 14bn PSBR the previous year.

Part of the explanation for the recent stellar improvement has been the switch to self assessment, which has speeded up income tax receipts. These were 42 per cent higher in January and February than in the same two months last year, but will fall back in later months.

However, other tax receipts are also buoyant thanks to the strength of the economy, and especially consumer spending, in the past year.

Just as important has been the Government's extraordinary control over expenditure. Spending by central government departments is actually lower than a year ago, at pounds 263.2bn in April-February, down from pounds 264.3bn in the same months last year. Even a traditional end-of-year spree will keep the total below the Treasury's forecast growth of 1 per cent.

Yesterday's inflation figures were less favourable, although the experts differed in their reaction.

The headline rate of retail price inflation edged up from 3.3 per cent to 3.4 per cent in February, while the target measure climbed from 2.5 per cent to 2.6 per cent.