Shock rise in borrowing piles pressure on coalition

Shock figures showed net borrowing of £15.9 billion for the month, more than £3 billion worse than expected and the biggest deficit since the Office for National Statistics' monthly records began in 1993.

Public spending remains stubbornly high despite a gradual recovery in tax revenues from the worst depths of the recession, the figures showed.

The data, which come against the backdrop of the looming public spending review, showed current spending soaring 11% to £49.8 billion against a year earlier.

Spending is rising at the fastest annual pace since February.

The borrowing bill shot up because the Government was forced to shell out more in interest payments on its inflation-linked debt thn a year ago, when the Retail Price Index was stuck in negative territory.

But benefit payouts were also ahead of last year at £14.3 billion and overall Government spending, including wages and salaries, rose to £31.8 billion. Despite the August overshoot, there was some better news on borrowing for the deficit-watchers. The figures also showed borrowing £3.8 billion below 12 months ago at £58.1 billion, after revisions to earlier data.

Ratings agency Moody's also said this week that the UK is in no immediate danger of losing its triple-A sovereign credit rating because of the coalition's commitment to tackle the deficit.

But some warned that the Government may struggle to meet its borrowing target of £149 billion for the current year, as forecast by the Office for Budget Responsibility.

Capital Economics economist Samuel Tombs said: "August's public finances figures severely dented hopes that the fiscal position is on a clearly improving trend and cast doubt on the ability of the Government to deliver the fiscal tightening laid out in the June Budget."

August is traditionally a poor month for the public finances and the Item Club's chief economic adviser Andrew Goodwin said a clearer picture would not emerge until after the October spending review.

He said: "The government has a massive task on its hands to regain control over the public finances and we eagerly await next month's review to see how their plans for cutting spending stack up.

"This promises to be the critical juncture for UK fiscal policy, with the government's fiscal reputation hanging on whether it can deliver a credible plan to cut spending."

A Treasury spokesman said: "Although broadly in line with the OBR's Budget forecast, today's figures demonstrate just why the Government needs to tackle the deficit."