The fiscal squeeze facing new Chancellor John Healey ahead of his inaugural Budget has been laid bare as official figures showed government borrowing unexpectedly rose to £1.8 billion last month.

The Office for National Statistics (ONS) said government borrowing stood at £1.8 billion in July, £700 million or 68.7% higher than a year ago and confounding expectations.

Most economists had forecast zero borrowing last month while the independent fiscal forecaster, the Office for Budget Responsibility (OBR), had predicted a £500 million surplus.

The borrowing hike came despite a record July for income tax receipts.

In the first four months of the financial year so far, borrowing was also more than the OBR forecast, at £56.7 billion, though this was £6 billion or 9.6% billion lower than a year earlier.

The data shows the fiscal headache facing Mr Healey as he prepares his first Budget on October 28.

Mr Healey said: “Fiscal discipline is the bedrock of our UK economic stability and national security, which is why we are committed to meeting our fiscal rules, with a buffer against global uncertainties.

“We are cutting the deficit faster than any other G7 economy while giving people a bit of breathing space with cost-of-living pressures and focusing support to get young people into work.”