UK public sector borrowing dropped to £1.1bn in July, the lowest July borrowing for three years, as stronger tax revenues slowed the increase in public borrowing. The uplift in receipts was largely driven by a better-than-expected economic performance in the first half of the year.

Despite this improvement, borrowing for the financial year to date remains £6.7bn higher than the same period last year. The national debt is hovering close to 100% of GDP, keeping fiscal discipline in sharp focus for investors and lenders. The current trajectory of spending on the ever-enlarging welfare state is unsustainable, and elevated gilt yields continue to push up the cost of servicing the debt (estimated at almost £20bn in June), eating into the Chancellor’s fiscal headroom ahead of a tricky Autumn Budget.

While July’s figures may offer the Chancellor some limited flexibility, market conditions remain critical. Sticky inflation could upset the financial markets and push up UK gilt yields even further, quickly making the cost of servicing the debt even higher.

Fiscal stability will continue to be under close scrutiny at the Autumn Budget — there will undoubtedly be tighter control from the Treasury over spending than we’ve seen so far under Reeves’ leadership, but we are almost certainly going to see tax rises.

Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.