Improving public finances offer UK a glimmer of hope

The UK's public finances improved in July, official data showed yesterday, providing some cheer for George Osborne, the Chancellor, amid the market turmoil.

The Office for National Statistics said the Treasury borrowed just £20m during July, substantially less than expected, and a drop in the ocean compared with the same month of last year, when borrowing totalled £3.5bn. The Treasury's coffers were also swelled by the first receipts from the new levy on the banking sector, as well as a sharp increase in VAT takings, reflecting the increase in the rate from 17.5 per cent to 20 per cent at the beginning of the year.

A spokesman for the Government said the data underlined the Chancellor's determination to ensure his deficit-reduction plans were not blown off course. "As recent weeks' events have shown with the US ratings downgrade and continued turbulence in Europe, it is vital the Government sticks to its plan."

However, City economists were divided. Samuel Tombs, of Capital Economics, said he expected the Government to borrow £10bn more this year than the £122bn forecast by the Office for Budget Responsibility (OBR).

"July's public finance figures suggest that the trend in borrowing has improved a bit, but not enough to leave the Government on track to hit the fiscal forecasts for the year as a whole," he said.

But Nomura's Philip Rush said: "On balance, this has kept public finances on course to meet the OBR's projections."