George Osborne's battle to bring down the annual deficit was given a small boost yesterday as figures showed underlying Government borrowing for July fell by half.
But public finances for the financial year to date are still in worse shape than they were a year ago, showing the scale of the task facing the Chancellor as he tries to meet his fiscal target.
Borrowing of £764m in July – which excludes the effects of bank bail-outs and the Bank of England's quantitative easing (QE) asset purchase scheme – compares to a figure of £1.573bn in the same month last year.
The improvement appears to be a step in the direction of the 10% reduction in the annual deficit, targeted by the independent Office for Budget Responsibility (OBR).
But year-to-date underlying borrowing from April to June, at £37bn, is 5.1% worse than at the same stage in 2013, according to the figures published by the Office for National Statistics (ONS).
July's figure also looks disappointing compared to the performance for the month in the years prior to last, when public finances had shown a surplus.
But Samuel Tombs of Capital Economics said the figures "show that the fiscal consolidation might still be on track despite the excessive borrowing seen in the first three months of the fiscal year".
"July's small deficit brings the running total of borrowing this year a little closer to the 10% annual reduction required to meet the OBR's full year forecast.
"Accordingly, the Chancellor may yet be spared the difficult decision of announcing further slippage of the fiscal plans or extra austerity before next May's general election."
A Treasury spokesman said the figures remained in line with forecasts for the deficit as a percentage of gross domestic product (GDP) to be halved by the end of the current fiscal year compared with when the Coalition came to power.
A surplus is expected to be "back loaded" to January 2015 due to strong growth in self-assessed tax revenues for 2013/14, with taxpayers shifting income declarations from the 2012/13 period to take advantage of a cut in the tax rate. But Chris Leslie, shadow chief secretary to the Treasury, said the Chancellor was on course to break his promise on balancing the books by next year.
The ONS figures showed that in July, central government receipts were £1.8bn higher than in the same month last year.