The UK government recorded a surprise public sector deficit of £1.8bn in July, defying City economists' forecasts of a balanced budget, adding pressure on chancellor John Healey as he prepares to deliver his first budget on 28 October. The unexpected shortfall came despite strong tax receipts, a month typically boosted by self-assessment income tax payments, and highlights the tight fiscal position Healey inherits amid weaker growth, higher inflation and rising bond yields.

Figures from the Office for National Statistics showed the cumulative deficit for the first four months of the financial year reached £56.7bn, lower than the same period last year but still £2.3bn above the Office for Budget Responsibility's forecast. Total public debt stood at £2.98tn, equivalent to 94% of GDP, up £96bn on a year earlier, reflecting Labour's strategy of borrowing to fund infrastructure investment. Healey said the government remained committed to its fiscal rules and a buffer against global uncertainty, insisting the UK was cutting its deficit faster than any other G7 economy while supporting people with cost-of-living pressures.