Government borrowing this financial year surges to £22.8 billion

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The government recorded its first surplus in the month of July since 2002, according to the latest borrowing figures published today.

The improved tax takings meant that last month saw a surplus of £0.2bn, compared to a deficit of £0.3bn seen over the same month a year ago, according to the Office for National Statistics (ONS).

But the year as a whole looks less promising, as last year's vote to leave the European Union has pushed up inflation and related borrowing costs, and led to slower growth since the start of 2017.

Last month's tax receipts rose by £0.8bn to £8bn; compared with July 2016; the highest since records began in 1999.

Over the first four months of the financial year, however, the United Kingdom has borrowed £22.8bn, £1.9bn higher than in the same period April to July period in 2016.

While economists think Hammond is still on track to meet his borrowing targets for 2017/18, they warned that a weak economy could soon dent revenue streams like income tax.

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"July's public finance figures showed an improvement on past year, but this will probably prove to be just a temporary blip", says Ruth Gregory, UK Economist at Capital Economics.

Britain's finances tend to enjoy a strong July as self-employed people pay their income tax and businesses settle their corporation tax bills.

While the pace of deficit reduction required is hotly contested by politicians and economists, the size of the deficit is crucial to the political room for manoeuvre for the government ahead of the next Budget, to be announced in November. This reflected new methodology introduced in the current financial year that smooths out corporation tax revenues over the year.

Public sector net borrowing excluding public sector banks was in GBP 0.2 billion surplus, which was the first July surplus since 2002.

However, the size of the deficit, which the chancellor has committed to eliminating by the middle of the next decade, is still on course to rise year-on-year.

A Treasury spokesperson in London said, "We are making good progress in strengthening our public finances and living within our means".