Borrowing figure less than expected

Public sector net borrowing came in at 16bn, down from 17.4bn a year earlier and well below consensus forecasts of 18bn.

April's borrowing figures were also revised down by 1.6bn, said the Office for National Statistics (ONS).

The better than feared borrowing figures – helped by stronger tax receipts – are unlikely to prevent Mr Osborne from imposing a fiscal squeeze in his first Budget, with a VAT increase most likely.

The forecasts from the newly-created Office for Budget Responsibility (OBR) earlier this week also predicted lower borrowing – but stressed a bigger structural deficit in the public accounts, which needs to be addressed through tax hikes or slashing spending.

Last month, the Government announced 6.2bn of spending cuts and on Thursday scrapped another 2bn of schemes announced by Labour before the election.

However, the data on the UK's recession-ravaged finances still showed spending running well ahead of receipts.