The UK's public finances enjoyed a return to positive territory in July, although the surplus was smaller than last year as spending increased, official figures have revealed.

Data from the Office for National Statistics (ONS) showed a public sector cash surplus of �7.1bn last month, compared with a deficit of the same amount in June.

The ONS also indicated that the government was sticking to its pledge of increased spending on the public sector, up 6.8% on last year.

However, in the receipts department, revenues for corporation tax were down 4.6% for the year to date, indicating a possible fall in company profitability.

Figures on track

Tuesday's figures were in line with expectations.

Analysts had predicted a public sector surplus of �7.5bn for July, against a �9.41bn surplus recorded in July 2001.

The swing-back from June was expected, as this is the month when the government usually pays the interest on its debt.

However, analysts said the year-on-year decline reflected higher government spending.

Total spending for government departments is up 6.8% for the year so far, while total receipts have risen by just 1.6%.

Analyst Mike Taylor at Merrill Lynch said the figures indicated that the economy was "holding up well, while public spending is taking off".

The Labour government built up a large public sector surplus in the years after it came to power in 1997, and has now committed to spending more on the UK's public services.

Increased car production

The ONS also reported a leap in car production during July.

As car makers geared up for the August registration change - which usually boosts demand - production rose to 134,000 against 113,000 in June.