The government borrowed £11.6bn in August, the fourth highest August borrowing figures on record but still lower than official forecasts from the Office for Budget Responsibility (OBR).
According to figures from the Office for National Statistics (ONS), higher central government spending meant borrowing was £3.5bn higher than August last year.
The only time the government has borrowed more in August was during the pandemic and immediately after the financial crisis.
However, the figures were still below official forecasts from the OBR, which showed that the government was in line to borrow £13bn in August.
The improvement compared to the OBR’s forecasts derived from stronger government receipts, which rose to £76.6bn. Receipts from income tax and value added tax both increased by £1.2bn.
Rising nominal pay as a result of inflation has pulled people into higher tax brackets, boosting receipts.
“The effect of high inflation on fiscal drag means the Treasury has raised far more from the freezing of income tax thresholds than it expected,” Martin Beck, chief economic advisor to the EY ITEM Club, explained.
This meant that in the financial year to August, the government has borrowed £69.6bn, over £11bn less than OBR forecasts.
“August’s public finances figures continued the recent run of better-than-expected news on the fiscal position,” Ashley Webb, UK economist at Capital Economics said.
But with growth expected to slow for the remainder of the year and interest bills rising, most economists think the run of lower than forecast borrowing might not last.
Michal Stelmach, senior economist at KPMG UK, said “longer-term headwinds remain, leaving uncertainty around the fiscal outlook beyond the next election”.
Chancellor Jeremy Hunt said: “These numbers show why after helping families in the pandemic we now need to balance the books.”
Total public sector debt climbed to £2.59trn, around 98.8 per cent of GDP and 2.3 percentage points higher than August last year.
Banking crises in 2008, Brexit, the pandemic and Russia’s invasion of Ukraine have all raised public borrowing and squeezed growth.
Before the financial crisis, debt as a share of GDP was a little over 35 per cent.
A large chunk of the UK’s debt pile is also tied to an old measure of inflation known as the retail price index, which has taken off over the last two years, raising the debt servicing bill. Consumer price inflation fell to 6.7 per cent in August, a faster than projected fall.