Britain's government again borrowed more than expected last month, according to official data released on Wednesday that highlighted the tight financial backdrop for new finance minister Rachel Reeves as she readies her first annual budget.

British public sector net borrowing was 3.101 billion pounds ($4.04 billion) in July, the Office for National Statistics said. It was the biggest July total since 2021, when the deficit surged during the COVID-19 pandemic.

Economists polled by Reuters had a median forecast of 1.5 billion pounds for public sector net borrowing, excluding state-controlled banks.

The ONS highlighted rising social benefits, pushed higher by inflation, and rising government wages as drivers of increased spending compared with a year ago.

The figures did not include recent pay deals struck between the new Labour government, elected last month in a landslide victory, and public sector workers including junior doctors.

Reeves has warned taxes will go up in her Oct. 30 budget but she has ruled out increases in rates of income, corporation and value-added taxes, leaving scant room for manoeuvre to improve public services and boost investment.

Britain's deputy finance minister, Darren Jones, said Wednesday's data were more proof of the "dire inheritance" left by the previous Conservative government.

So far the government has borrowed 51.4 billion pounds over the first four months of the 2024/25 financial year - about 5 billion pounds more than the Office for Budget Responsibility forecast.

Reeves published an immediate review of the new government's finances, which showed Britain on track for an overspend of 22 billion pounds against budget plans this financial year.

The opposition Conservative Party said Reeves had laid ground for increases in taxes on capital gains or inheritances.

"We expect ... Reeves to borrow around 20 billion pounds per year more than planned in the March Budget for the next five years as well as funding medium-term spending with higher taxes," Rob Wood, chief UK economist at Pantheon Macroeconomics, a consultancy, said.

Public debt, excluding state-owned banks, stood at 2.75 trillion pounds or roughly 99.4% of gross domestic product in July.

The ONS announced on Wednesday it would no longer classify NatWest Group plc - nationalised in the 2008 financial crisis when it was called RBS - as a public sector bank because public ownership had fallen below 25%.

That will cut around 372 billion pounds from the measure of public debt that includes state-owned banks, making it no different to the headline measure of debt that excludes banks.

(Editing by Alistair Smout, Kate Holton and Andrew Heavens)