UK borrowing increased by less than expected in July helped by higher tax revenues, raising expectations of a pre-election tax cut splurge by the Chancellor.
Figures from the Office for National Statistics (ONS) said public sector net borrowing, excluding public sector banks, reached £4.3 billion in July, £3.4 billion more than July 2022, but £1.7 billion below the Office for Budget Responsibility's forecast and the City consensus of £5.0 billion.
"Borrowing in July 2023 was the fifth highest in any July on record but is £1.7 billion less than the £6.0 billion forecast by the [Office for Budgetary Responsibility]," the ONS commented.
Self-assessed income tax receipts in July 2023 were £11.8 billion, £2.5 billion more than in July 2022.
Chancellor Jeremy Hunt and Prime Minister Rishi Sunak have come under pressure from certain quarters to cut taxes ahead of next year's expected election, which opinion polls suggest they will lose.
But economists poured cold water over such hopes.
Ruth Gregory at Capital Economics said while the figures were "better than expected", with "interest rates still rising and a mild recession on its way, we continue to think the Chancellor will struggle to unveil a large package of permanent tax cuts in the Autumn Statement while still adhering to his fiscal rules".
Samuel Tombs at Pantheon Macroeconomics agreed. "We still doubt, however, that the Chancellor will have enough wiggle room to meaningfully cut taxes or increase expenditure in the run up to the next General Election, which must be held by January 2025.
"The Chancellor could increase borrowing in the near term and pencil in unspecified spending cuts further down the line to ensure his fiscal rules still were being met.
"But the turmoil last October suggests markets likely will be less willing to tolerate plans that aren’t credible, particularly given the current economic backdrop of high CPI inflation," he added.
Martin Beck, chief economic advisor to the EY ITEM Club, thinks "given the significant increase in government borrowing costs in recent months, the medium-term outlook for borrowing still looks less healthy than the OBR expects".
He said "the true medium-term path for fiscal policy is unlikely to emerge until the first post-election budget".