An increase in government spending has led to the UK posting its first July budget deficit since 2010, showing that public finances have yet to benefit from the country’s economic uptick.
Data from the Office for National Statistics shows net borrowing, excluding temporary support for banks and the effects of the transfers from the Bank of England’s asset purchase facility fund, amounted to £488m last month.
This is down from the £823m surplus that was recorded one year earlier.
The UK usually records a budget surplus in July, as quarterly payments on taxes on corporate profits and self-employed people pour into public coffers along with payments from oil companies.
However, this year a 3.7 per cent increase in government spending outstripped the 3.4 per cent rise in underlying tax receipts.
Economic indicators from the UK have shown steady signs of strengthening over recent months, with GDP growing by 0.3 per cent in the second quarter of the year. However, this improvement has not yet been reflected in government borrowing figures, which may disappoint Chancellor George Osborne.
Capital Economics UK economist Martin Beck says: “Borrowing [excluding transfers from the APF and the Royal Mail pension plan] in the first four months of the fiscal year is now running at £36.8bn, above the £35.2bn seen in April-July 2012.
“So while signs of economic recovery should eventually feed through into an improvement in the public finances, it looks like the Chancellor will have to wait a while yet.”
According to the ONS, public sector net debt excluding the temporary effects of financial interventions was £1,193.4bn at the end of July, equivalent to 74.5 per cent of GDP.