According to the Office for National Statistics (ONS), UK public sector net borrowing saw a monthly surplus of £7.75bn in January, the largest surplus since 2008.
The figures were driven by a drop in local government borrowing and a small rise in tax receipts, the ONS said.
The surplus was bigger than the £6.3bn expected by forecasts, and means net debt excluding financial interventions has fallen to £93.5bn in the financial year to date, down from £109.14bn last year.
It means the government has a chance of sticking to its target to cap borrowing at £127bn this year, compared to £136bn in 2011.
Chris Williams, chief economist for Markit Economics said the lower deficit could give the Chancellor George Osborne some additional flexibility on Budget day.
“The combination of higher than expected tax receipts and planned spending cuts could mean the deficit for the year comes in below £120bn,” he said.
“That undershoot may provide Osborne with some leeway to seek ways to stimulate economic growth in the Budget, which would most likely take the form of tax incentives rather than reversals of previously announced spending cuts.”
The government is keen to cut borrowing in order to maintain a sustainable net debt to GDP ratio, and stave off a possible downgrade of its credit rating by ratings agencies.
Moody’s warned last week that Britain could lose its triple A credit rating in the next 18 months because of the impact of the crisis in the eurozone.