Image copyright PA

The UK government had a smaller budget surplus than expected in July, the first calendar month since the Brexit vote.

Public sector net borrowing was in surplus by £1bn for the month, less than the £1.2bn seen a year earlier.

July is typically a month of surplus for the public finances, because of revenues from corporation tax.

For the financial year to date, public borrowing was 11.3% lower than a year earlier.

For the April-to-July period, the total was £23.7bn, £3bn less than the same period in 2015.

Total public sector net debt at the end of July was £1,604.2bn, equivalent to 82.9% of GDP. That was £35.3bn more than in July 2015.

UK 'well-placed'

The Office for National Statistics (ONS) said July was the second month in a row in which the debt had fallen as a percentage of GDP. In June, it was 84% of GDP.

That indicated that GDP was currently increasing year-on-year faster than net debt, although the ONS stressed that care should be taken when inferring trends from only two months' data.

The ONS said its bulletin presented the latest fiscal position of the public sector as at 31 July 2016 and so included the first post-EU referendum data.

However, it added that estimates for the latest period always contained a substantial forecast element and so any post-referendum impact might not become clear for some time.

Image copyright PA Image caption Chancellor Philip Hammond has indicated he will take a more gradual approach to deficit reduction

The UK's new Chancellor, Philip Hammond, has indicated that he will take a more gradual approach to deficit reduction and will not be bound by the targets of his predecessor, George Osborne.

His own policies should become clearer when he presents his Autumn Statement, due before the end of the year.

The Chief Secretary to the Treasury, David Gauke, said: "With the public finances in surplus in July, our economy starts from a position of strength to face any economic turbulence following the vote to leave the EU.

"As we keep working to cut the deficit, we are well-placed to handle any challenges and seize the opportunities as our economy adjusts."

Shadow chancellor John McDonnell said: "The UK economy needs immediate investment from the government, rather than sticking to the failed policies of George Osborne which have helped create the problem.

"Britain is on hold waiting for Philip Hammond to tell us whether he will stick to his predecessor's planned cuts to investment, and firms and households can't wait until the autumn to find out."

Brexit 'hit' fears

Howard Archer, chief UK and European Economist at IHS Global Insight, said: "The UK's vote to leave the European Union clearly put the fiscal targets for 2016-17 and beyond out of reach.

"Even before the Brexit vote, the plan to get [public sector net borrowing] down to £55.5bn in 2016-17 from £74.9bn in 2015-16 had looked challenging, while ex-Chancellor George Osborne's target of a budget surplus in 2019-20 was widely seen as hugely optimistic."

Mr Archer added: "The public finances look poised to take a serious hit from probable significantly weakened economic activity after the Brexit vote, taking a toll on tax receipts in particular. It also seems probable that unemployment will rise, while any slowdown in the housing market will hit Stamp Duty receipts."

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: "Fixing the public finances remains a major challenge, and is likely to be an increasingly uphill task if economic growth slows in the coming months.

"If the economy does weaken, the UK will struggle to generate sufficient tax receipts needed to make meaningful progress in reducing the deficit.

"More needs to be done to strengthen the UK's tax base. The government should use the extra fiscal headroom from abandoning the 2020 target to support firms looking to invest, and deliver on major infrastructure projects that will boost jobs and growth."