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Public sector borrowing up £600m

Fresh fears over the Government finances have been raised after it failed to boost its coffers in a normally bumper month for tax receipts.

Shock figures showed public sector net borrowing, excluding financial interventions such as bank bailouts, rose by £600 million in July, according to the Office for National Statistics (ONS).

This disappointed the City, which had expected a £2.5 billion surplus in a month when many companies pay the first instalment of corporation tax for the year.

But with the UK mired in recession, the Government's income fell slightly while benefits and public sector spending rose, triggering fresh criticism that Chancellor George Osborne's austerity measures are damaging the economy.

It was only the third time in the last 15 years that the Government has not recorded a surplus in July.

In a further blow to the UK's creaking finances, the ONS revised higher its borrowing figures for April to June by £1.4 billion.

The combined effect of the revision and July's shock rise meant net borrowing so far this year, excluding a one-off boost after assets from the Royal Mail's pension fund was transferred to the Treasury, came in at £44.9 billion, which is £9.3 billion higher than a year ago.

Economists fear the Government is on track for a "massive" overshoot of the target set for it by independent financial watchdog the Office for Budget Responsibility to reduce the deficit for 2012/13 by £5 billion to £120 billion.

Nida Ali, economic adviser to the Ernst & Young ITEM Club, which uses the Treasury's forecasting model, said: "Yet another discouraging release for the public finances, which seem to be going from bad to worse with every successive month.

"The jump in Government spending and decline in revenues is a genuine cause for concern. If this trend continues in the coming months, the Government will be on course for a massive overshoot of the OBR's borrowing forecast."

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