Official figures show strong VAT receipts have helped government borrowing to fall to its lowest August level since 2007.
The Office for National Statistics (ONS) reported that the government’s deficit narrowed to £5.7bn last month, compared with £7bn a year earlier.
VAT receipts rose by 5.6% from last year to £11.6bn, a record for August.
The government has borrowed £28.3bn for the financial year as a whole, down £0.2bn from the same point last year.
The figures for the month of August were lower than analysts had anticipated and followed a £0.2bn surplus in July, which was the first such surplus for that month since 2002.
The government’s total debt, however – which is defined as public sector net debt (excluding public sector banks) – stood at £1.77 trillion at the end of August, equivalent to 88% of gross domestic product.
VAT receipts were up a strong 5.6 per cent compared with August last year, taking the growth rate for the current 2017-18 fiscal year to 3.1 per cent.
The sales tax revenues represent a possible sign consumer spending is holding up, despite recent figures showing inflation rising and wages stalling, and a drop in the value of the pound since the Brexit vote.
Income tax and corporation tax receipts, however, were down 0.6 per cent and 4.3 per cent on the same month in 2016-17.
“If the trend in the public finances seen so far this fiscal year continues, then borrowing would undershoot the OBR’s forecast by £13bn,” said Paul Hollingsworth of Capital Economics.
“Even if that figure shrinks a little, the Chancellor is still likely to have some extra money to play with – on top of the scope already contained within the fiscal rules. As a result, some easing back on austerity, to help households struggling in the face of the squeeze on real incomes, looks likely.”
Howard Archer of the EY Item Club raised concerns about the longevity of the improvements saying, “The public finances were helped in the latter months of 2016/17 by a number of special factors that will not be repeated in 2017/18. Furthermore, a still lacklustre economy and higher interest debt payments look likely to weigh down on the public finances over the coming months.”