Government borrows higher-than-expected £10.6 billion
The UK's public finances were in worse shape last month as the Government surprised economists by borrowing a higher-than-expected £10.6 billion.
The Office for National Statistics (ONS) said public sector net borrowing, excluding state-owned banks, jumped 14.5% in September compared with the same month in 2015.
Economists were pencilling in a figure of £8.5 billion.
It came as Government borrowing, excluding banks, for the financial year to date - April to September - fell by £2.3 billion to £45.5 billion, compared with the same six months in 2015.
It means Chancellor Philip Hammond can only borrow £10 billion for the entire second half of the financial year if he is to meet the latest Office for Budget Responsibility's (OBR) forecast of £55.5 billion for 2016/17.
Mr Hammond said the Government was "committed to fiscal discipline" and would balance the books over a "sensible period of time" that would allow it to support the economy.
"We have already made significant progress in bringing the public finances under control, reducing the deficit by almost two-thirds since 2010, but our debt and deficit remain too high," he said.
September's rise in Government borrowing was driven by an increase in net borrowing from central and local government, which stepped up by £1.3 billion and £300 million respectively.
The ONS said tax receipts rose 2.6% to £49 billion last month, compared with September 2015.
However, the Government's coffers were hit by an 8.7% drop in corporation tax receipts to £2.3 billion, while VAT receipts grew at their slowest pace for September since 2012, lifting 1.4% to £11.1 billion.
A rise in Government spending also put pressure on the UK's finances, climbing 4.3% to £57.2 billion over the period.
The Chancellor previously indicated that he could take advantage of the cheap cost of borrowing to push fresh investment into the UK in the hope of bolstering productivity.
The move would be a departure from the economic direction plotted by former chancellor George Osborne, whose aim of achieving a budget surplus by 2020 was scrapped by Prime Minister Theresa May.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said progress the Government had made in driving down the budget deficit had "virtually halted".
"With the budget deficit set to equal about 3.5% of gross domestic product (GDP) this year and likely to rise next year as the economy slows, and the sharp rise in gilt yields underlining that investors' confidence is fraying, we expect the Chancellor to be cautious."
The ONS said public sector net debt excluding banks climbed by £39.5 billion to £1,627.2 billion last month, equivalent to 83.3% of GDP.
John Hawksworth, chief economist at PwC, said the borrowing figures "were a bit of a cold shower for the Chancellor" after a run of "generally favourable post-referendum economic data".
He said it was now likely that the budget deficit for the year would come in at around £65 billion to £70 billion.
"We would not, however, expect the Chancellor to take any immediate action in the Autumn Statement to correct this budget deficit overshoot, as this could be counter-productive and further weaken the economy," he added.