Blow for George Osborne as borrowing hits £37 billion

Shock increase casts more doubt over the Chancellor’s ability to meet the target of the Office for Budget Responsibility fiscal watchdog

Chancellor George Osborne’s efforts to tackle the deficit were dealt a surprise blow after shock figures showed borrowing running £1.8 billion ahead of last year despite the strongest growth since 2007.

Analysts said Osborne had virtually no breathing space for electoral giveaways just nine months before polling day after the surprise, £800 million deficit for July — usually a surplus month due to quarterly tax receipts. This puts borrowing for the first four months of the financial year so far at £37 billion, well ahead of the £35.2 billion seen last year.

It also casts more doubt over the Chancellor’s ability to meet the target of the Office for Budget Responsibility fiscal watchdog, which forecasts borrowing of £95.5 billion for the full year, after one-offs like dividends from the Bank of England’s money-printing programme to the Treasury’s coffers are stripped out.

With a third of the year gone, the public finances are on course to overshoot the watchdog’s target by more than £10 billion at the current rate  of increase.

ING Bank’s James Knightley said: “The OBR’s full-year forecast is going to be difficult to hit, meaning that the Chancellor is probably going to have little room to offer a big, pre-election giveaway next year.”

Tax receipts were inflated last year as many companies held back payments to benefit from the fall in the top rate of income tax to 45 per cent last April. But worryingly for the Chancellor, corporation tax receipts were also down 4.8 per cent year on year and the Government faced an extra £1 billion spending bill which went mainly on pensions.

Royal Bank of Scotland economist Ross Walker warned: “There are significant fiscal challenges ahead beyond the election. The big picture is that we have been running a little behind on the tax revenue part of the equation. It’s been a little bit sluggish given the growth we have had.”

Walker added that the weak tax performance supported the OBR’s case that the lion’s share of the deficit is structural and lingers on despite any improvement in the economy.

The Government took more in VAT receipts which rose 3.9 per cent £10.3 billion. A still-buoyant housing market inflated July’s tax-take by £100 million over last year to £1.3 billion.  Retail figures for July also disappointed today as sales growth virtually ground to a halt, rising just 0.1 per cent.

No end to eurozone’s economic woes

THE eurozone’s economic plight lingered on in August as growth among the region’s private firms stuttered even before the full impact of Russian sanctions.

Official figures showed the single-currency bloc grinding to a halt between April and June, dragged lower by a shrinking economy in Germany and a stagnant France.

Today’s snapshot from financial data provider Markit did little to provide cheer as its index, where a score over 50 signals growth, slowed from 53.8 to 52.8 amid more signs of weakness from the region’s twin powerhouses.

The survey at least indicates modest growth but comes before the sanctions war between Europe and Russia over its support for Ukrainian rebels fully kicks in. Markit senior economist Rob Dobson said. “We are not seeing a recovery taking real hold as yet.”

ING’s Martin van Vliet said: “Today’s figures will undoubtedly reinforce pressure on the European Central Bank to do more to support the recovery and bring inflation back to the target. However, we still think that the ECB will remain on hold in the coming months.”

Start your day with The Independent, sign up for daily news emails
Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
News
ebooksNow available in paperback
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum