British Chancellor George Osborne's deficit reduction plans were dealt a blow when figures revealed a shock rise in UK borrowing in July.
Public sector net borrowing, excluding financial interventions such as bank bailouts, came in at £600m in July.
This compared with a surplus of £2.8 billion the same month last year, and dashed the City's expectations of a surplus of £2.5 billion.
July is normally a strong month for tax income, but total receipts fell 0.8%, driven by a drop in corporation tax, while government spending rose 5.1%.
In a further blow to the Chancellor, net borrowing for April to June, was revised up by £1.4 billion. That means borrowing so far this year, excluding a one-off boost after assets from the Royal Mail's pension fund was transferred to the Treasury, is £44.9 billion, £9.3 billion higher than a year ago.
The UK government wants to trim borrowing in 2012/13 to £120 billion, excluding the one-off £28 billion boost from the transfer of the Royal Mail pension fund. That compares with a figure of £125 billion last year, which was revised lower by £700m today.
Mr Osborne is in the process of rolling out billions of pounds of spending cuts and hundreds of thousands of public sector job losses in a bid to slash the budget deficit.
But the plans have been hit by the UK's return to recession, which is hurting tax revenues, while high levels of unemployment are increasing the burden on the state.
Social benefit payments rose 6.2% to £16 billion in the month while a fall in corporation tax drove a 6% fall in taxes on income and wealth, although this was largely impacted by the closure of the Elgin gas field in the North Sea following a leak.
"Tax receipts are coming in below forecast but this is mostly explained by the weakness in corporation tax, especially from North Sea oil production,'' a Treasury spokesman said.
"The Government's fiscal mandate deliberately allows the automatic stabilisers to operate in response to weakness in the global economy, but it is still too early in the financial year to draw firm conclusions about the year as a whole,'' he added.