Britain's budget deficit blew out to the worst ever October reading for an October last month, suffering a much bigger than expected shortfall of £11.4bn, official data showed today.

The Office for National Statistics also said that the national debt soared to 59.2% of gross domestic product in October, the highest since records began in 1974/75.

"The public finance numbers are very disappointing, coming in much worse than expected. £4bn more (than expected) does suggest that the deficit could come in around the £175bn mark," said David Page, economist at Investec, referring to chancellor Alistair Darling's forecast for the budget deficit for the full 2009/10 fiscal year.

The deficit has exploded over the past 12 months as the recession has reduced tax receipts and pushed up spending on unemployment benefit.

Hetal Mehta, economic advisor to the Ernst & Young Item Club, said: "Today's figures indicate that the government is on course to overshoot its net borrowing projections for the current financial year. But the problem is likely to worsen next year, when weak tax receipts and high expenditure levels, thanks to continued outlays for social benefits, will push up the deficit.

"Regardless of the new Fiscal Responsibility Bill which commits the government to halving the deficit within four years, there is no doubt that fiscal policy will have to be tightened significantly after the election regardless of who forms the next government."

Separately, the Bank of England reported that the flow of lending to British businesses contracted for an eighth consecutive month in September as firms continued to use funds raised on capital markets to pay down bank debt.

The central bank's Trends in Lending report showed lending to businesses fell by £4.6bn in September. That was more than the £1.1bn contraction in August but less than the record £15.6bn contraction in July of this year.

The figures also showed that major banks approved around 61,000 mortgages for house purchase in October, up from 56,000 in September but still well below the average of the past decade.

Threadneedle Street has identified constraints to lending to businesses as a major stumbling block in the way of a sustainable recovery and is monitoring such flows carefully. The survey noted that the decline was broad-based across all sectors.