UK borrowing unexpectedly rises in July

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LONDON (AP) — The British government's attempts to cut its deficit were thrown off track Tuesday when it revealed it borrowed more money than expected in July due to a fall in money raised from taxes.

Public sector borrowing in July hit 600 million pounds ($945 million), compared to a surplus of 2.8 billion pounds a year ago, the Office for National Statistics said Tuesday. The public sector usually posts a surplus for July as it is a strong month for tax receipts. However, tax revenues for the month were down nearly 1 percent, with corporation tax revenue falling by 10 percent.

The figures suggest the U.K. may overshoot its full-year borrowing target, and will open up the debate on the effectiveness of the government's austerity measures, which were introduced to bring the U.K.'s deficit back under control.

"Part of the increase in July's borrowing can be attributed to a fall in corporation tax receipts but, for the most part, the increase in borrowing is because of overall weakness in the domestic economy," said Nida Ali, economic adviser to the Ernst & Young ITEM Club.

Britain's 1.5 trillion pound ($2.4 trillion) economy is the third-largest in the 27-country European Union after Germany and France. The country has been in recession for the last nine months, with a reported drop in output of 0.7 percent in the second quarter. The statistics agency will release its revised estimate for the period on Friday, with analysts expecting an upward revision, though remaining negative.

The Bank of England has forecast a return to growth in the second half of the year, but only strong enough to leave the country's full-year GDP about where it was at the end of 2011.

For the fiscal year which began in April, the statistics agency reported that public sector borrowing was 9.3 billion pounds ($14.7 billion) higher than a year ago.

If that trend continues, borrowing for the full year would be about 160 billion pounds, or 40 billion above the government target, said Vicky Redwood, chief U.K. economist at Capital Economics.

Part of the dip in corporation tax receipts reflected the temporary closure of the Elgin gas field in the North Sea earlier this year following the discovery of a leak on a platforms operated by French company Total.

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