Attempts to slash the deficit have been dealt a blow by figures showing underlying Government borrowing rose by £1.3 billion in July on higher spending.
Public sector net borrowing, excluding distortions such as bank bailouts and quantitative easing (QE) cash transfers, was £488 million compared with a surplus of £823 million a month earlier.
Figures from the Office for National Statistics (ONS) showed an increase in central government spending outstripped a rise in tax receipts - a blow during a month when the state typically books a surplus due to company tax payments.
The last time there was net borrowing in July rather than a surplus was 2010.
Once a transfer of around £400 million of QE cash was included, public sector net borrowing was £62 million in July, £885 million higher than the £823 million surplus a year earlier.
The ONS said higher central government spending was spread across departments, adding that the Treasury expects this to be revised lower in coming months.
The independent Office for Budget Responsibility (OBR), set up to monitor public finances, expects the deficit to come in at around £120 billion for the year to the end of next March, above last year's £116.5 billion deficit.
A Treasury spokeswoman said: "Strong tax receipts in July confirm that the economy is moving from rescue to recovery. There is still a long way to go as the UK recovers from the biggest economic crisis in living memory, and the Government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.3 million new jobs."
ONS figures showed total tax receipts excluding QE cash were 3.4% higher year on year at £54.1 billion in July, helped by increases in VAT sales tax, income tax, National Insurance contributions and stamp duty on home purchases. But corporation tax receipts dipped to £7 billion from £7.1 billion a year earlier, despite increasing signs of growth in the economy.
Central government spending rose by 4% to £51.2 billion. Public sector net debt as a proportion of the UK's gross domestic product (GDP) hit a record for July at 74.5%.