CHANCELLOR Philip Hammond has been handed a boost to the public finances ahead of November's Budget as UK Government borrowing fell to its lowest level in a decade last month.

Figures from the Office for National Statistics showed borrowing, excluding state-owned banks, unexpectedly dropped in September by £700 million to £5.9 billion in contrast to last year.

It ensured that the UK's public finances recorded its lowest net borrowing figure since September 2007, while also coming in shy of economists' expectations of £6.7bn.

The outcome means Government borrowing for the current financial year, April to September, also dropped by £2.5bn to £32.5bn; also the lowest level for 10 years.

The update gave some encouragement to currency traders with sterling paring its losses against the US dollar to sit 0.1 per cent lower at 1.31. The pound was 0.3 per cent higher versus the euro at 1.11.

Howard Archer, chief economic adviser for EY Item Club, said the result delivered "very welcome news" for Mr Hammond as the Budget looms.

He added: "If the pattern of the first six months were repeated over the full fiscal year, 2017/18 public borrowing would come in at £42.4bn - which would be substantially below the shortfall of £58.3bn forecast by the Office for Budget Responsibility in March's Budget.

"On the face of it, the much better-than-expected public finances over the first half of 2017/18 gives the Chancellor appreciable room for manoeuvre in November's Budget."

The Government will take some cheer from September's borrowing figures after dismal analysis from Britain's fiscal watchdog earlier in the month left Mr Hammond grappling with a potential black hole in next month's Budget.

The OBR admitted last week that it is set to cut its productivity predictions for the next five years in November's forecasts, likely leading to lower growth and tax receipts.

Despite the blow, Mr Hammond still remains on track to undershoot the OBR's forecast of £58.3bn for the financial year ending in March 2018.

The UK's public finances have enjoyed a lift from strong tax receipts during the current financial year to September, rising by £12.1bn to £334.5bn compared to last year.

However, Government spending has also climbed over the period by £10.1bn to £342.9bn, up from £332.8bn during 2016/17.

John Hawksworth, chief economist at PwC, said the gap in the UK public finances after the financial crisis had largely been filled but at the cost of higher accumulated public debt stock.

He said: "It certainly looks like the budget deficit for 2017/18 as a whole will be a long way below the OBR's March forecast of around £58bn and quite possibly lower than the latest estimated out-turn of £45.7bn in 2016/17.

"The latter was just 2.3 per cent of GDP, so the budget deficit this year could be down to close to 2.0 per cent of GDP, broadly in line with the Chancellor's 2020 deficit target.

"All of this might suggest that the Chancellor could have significant room to ease off on austerity in the Budget but the fly in the ointment here is that the OBR said last week it is likely to revise down future assumed productivity growth in its new economic forecasts, which would also imply slower tax revenue growth.

"This will probably be partly offset by higher assumed future jobs growth, but the net impact of these forecast changes is likely to be higher projected borrowing."

The ONS said public sector net debt, excluding state-owned banks, increased by £145.2bn to £1,785.3bn last month, equivalent to 87.2 per cent of gross domestic product.

A Treasury spokesman said: "Whilst we've made great progress getting the deficit down by over two thirds, government borrowing is still far too high at over £150m a day.

"We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services."

But Labour’s John McDonnell said: “The Tories promised to eliminate the deficit by 2015, yet here we are after seven years of austerity and falling wages, with today the ONS saying they have added a further £44.9bn to the national debt. And now the Government are claiming it will take it 15 years to clear the deficit.

“Phillip Hammond has borrowed more than any other Chancellor on record in his first year. It’s clear that their approach has not just prolonged economic suffering for many, it has failed even to deliver the fall in Government debt that was supposed to justify it,” declared the Shadow Chancellor.

He added: “Only Labour has a plan to invest in an economy that delivers for the many, not the few, while reducing Government debt in line with our Fiscal Credibility Rule.”