PHILIP Hammond has been given cause to celebrate as official figures showed the UK Government logged its largest July financial surplus since 2000.

The figures from the Office for National Statistics mean that, come the Autumn Budget, the Chancellor could loosen the restraints of austerity and spend more on public services.

They showed public sector net borrowing, excluding state-owned banks, was in the black by £2 billion in July, £1bn more than the surplus logged in July 2017. Economists had been expecting a surplus of £1.1 billion.

Government coffers were bolstered by receipts on self-assessed income tax, which are usually higher in January and to a lesser extent in July.

The figures also showed that the deficit, excluding banks, in the current financial year to date was £12.8bn, which is £8.5bn less than during the same April to July period in 2017.

However, public sector net debt, excluding state-owned banks, increased by £17.5bn to £1,777.5bn in July, equivalent to 84.3 per cent of gross domestic product or GDP.

Howard Archer, chief economic adviser for the EY ITEM Club, said that if the pattern observed over the past four months continued, then public sector net borrowing, excluding banks, would come in at £23.7bn for the full fiscal year; "substantially below the £37.1m shortfall expected," he noted.

At this rate, Mr Hammond could scrap plans for further fiscal tightening over the next two years at the upcoming Autumn Budget while keeping public finances on track, according to Pantheon Macroeconomics' chief UK economist Samuel Tombs.

"Public borrowing has remained on a sharp downward trend, creating scope for the Chancellor to pause the fiscal consolidation next year and still meet his self-prescribed targets," he said.

Yet Mr Tombs noted: “Faced with pressure from his own MPs to boost his party's opinion poll standing and the political imperative to show that the economy has prospered after leaving the EU in March 2019, we expect the Chancellor to use this scope to borrow more.

"That said, with extra money already earmarked for the NHS, the scope for tax cuts is modest."

Mr Archer also said it was "unlikely" that public finances would be able to "sustain their current rate of improvement".

He added: "They have significantly benefited from muted Government expenditure so far in this fiscal year[up just 0.7 per cent year-on-year during April-July]. This can be significantly influenced by the timing of payments over the year, including to the EU."

John McDonnell for Labour said Mr Hammond has simply “passed on the deficit” to his colleagues in other departments, pointing to record NHS deficits, schools begging parents for money for essentials and a growing social care crisis.

"Hard-pressed families and underpaid public sector workers have been made to pay for the price of Tory failure on the economy with brutal cuts to social provision and relentless pay restraint," declared the Shadow Chancellor.

But a Treasury spokesman insisted the Government had made “great progress” in repairing the public finances in the wake of the 2008 financial crash.

"Thanks to the hard work of the British people, Government borrowing is down by three quarters and debt is due to begin its first sustained fall in a generation.

“But we cannot be complacent, and we must keep debt falling to build a stronger economy and secure a brighter future for the next generation," he added.