Chancellor Rachel Reeves oversaw lower government borrowing than expected in July, official data has revealed.
Borrowing hit £1.1bn last month, making up the difference between income from taxes and total expenditure.
According to the Office for National Statistics (ONS), government borrowing was £2.3bn smaller than at the same time last year.
The fiscal watchdog predicted £2.1bn in borrowing over the month.
Government borrowing in June was £20.7bn by comparison, which was up by £6.6bn compared to the previous year.
In more worrying signs for bond traders, public debt has increased over the last year to 96.1 per cent of UK GDP.
Rachel Reeves faces OBR showdown
Office for Budget Responsibility (OBR) chiefs are likely to view government borrowing statistics in a negative light, with a damning report in July warning public debt could rise from its current level of 95 per cent of GDP to 270 per cent of GDP in 50 years.
Its report suggested the UK could not afford the triple lock pension while problems in balancing the costs of net zero with the impacts of climate change would further deteriorate public finances.
OBR chair Richard Hughes said politicians could “not afford the array of promises” they make to voters in successive elections.
The more imminent threat to public finances has been sounded by several forecasters in the City and across the UK, with the OBR on the state of the UK economy set to make the final judgment at this year’s Autumn Budget.
The National Institute of Economic and Social Research (NIESR) suggested that the government faced having to fill a £50bn black hole with higher taxes due to lower growth forecasts, policy U-turns and the threat of borrowing costs inching higher.
Other City analysts have indicated that at least £10bn in taxes will have to be raised later this year.
High government borrowing comes back to bite
Hiking taxes on property, pensions and businesses are among a number of options available to the Treasury but government officials are fearful of making unpopular decisions.
But bond markets rang alarm bells this week as long-term gilt yields inched up, pushing borrowing costs higher.
Various major economies are suffering from a lack of trust from traders across the world while quantitative tightening has also taken its toll on costs to the Treasury.
The UK’s long-term gilt yields have been higher than that seen for US government bonds when, previously, they have moved in a similar pattern, suggesting the risk premium on the UK is higher.
Rachel Reeves has reiterated that her fiscal rules are essential to assuaging her lenders as she said it was not “progressive” to pay off US hedge funds which own gilts.