George Osborne dealt blow by surprise August deficit surge

The recent good news on borrowing came to an abrupt halt for Chancellor George Osborne today as the deficit unexpectedly surged in August.

The £12.1 billion deficit was the biggest for the month since 2012, coming in well ahead of the £9 billion forecast by City number-crunchers and the £10.7 billion seen in August last year.

This year there were fewer late self-assessment income tax returns running into August, which flattered receipts a year earlier.

But departmental spending also rose in August compared with a year earlier, bucking a more usual trend of spending restraint.

For the first five months of the 2015/16 financial year as a whole, the picture was much brighter.

Public sector net borrowing was more than 10% down on the same period last year at £38.4 billion pounds, the lowest since 2008.

Capital Economics chief UK economist Vicky Redwood said: “We would not read too much into one set of figures, given that the trend had previously improving for several months.

“Indeed, we expect growth of tax receipts to recover quickly given that the recent strength of the economic recovery should be feeding through.”