George Osborne
George Osborne, who is on a trade mission in China, has been dealt a set back after the UK deficit widened Getty

Government borrowing increased to £12.1bn ($18.6bn) in the year to August as the Treasury was left pondering the biggest gap between spending and income for three years. Figures published by the Office for National Statistics (ONS) showed public sector net borrowing excluding bank bailouts increased by £1.4bn in the 12 months to August.

The figures surprised economists, who forecasted the UK deficit would come in at £9.2bn. The ONS says a combination of depressed receipts from corporation tax, which decreased by £0.2bn (-14.1%) to £1.4bn, and income tax-related payments, which were down by £0.4bn (-3.5%) to £11.9bn, were to blame for the shortfall. In the same period, government spending was £55.7bn, an increase of £1.3bn (+2.4%).

The national debt, meanwhile, stood at more than £1.5tn (80.6% of Gross Domestic Product) at the end of August, an increase of £68.9bn compared with last year. The FTSE 100 was down 2.3% to 5,965 in lunchtime trading.

The ONS explained that central government receipts follow a "strong cyclical pattern" over the year, with high receipts in April, July, October and January due to quarterly corporation tax returns being accrued to these months. Receipts from July usually drift into August but there were fewer this year.

There was some positive news for chancellor George Osborne in the form of borrowing this financial year shrinking by £4.4bn. The government has borrowed £38.4bn in the five months to August.

A Treasury spokesman said: "Britain's hard work is paying off with cumulative borrowing £4.4bn lower than at this point last year. We have more than halved the deficit but there's more to do with debt remaining higher than 80% of gross domestic product. We've learned there's no short cut to fixing the public finances to provide economic security for working people – that's why while the economy is growing we have to continue with the hard work of identifying savings and making reforms necessary to finish the job and build a resilient economy."