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* UK borrows 8.6 bln stg in Oct, up from 5.9 bln last year
* Figures pressure finance ministry before Dec budget update
* BoE rules out rate cut, against other stimulus for now
* Weak economy, falling corporation tax, behind shortfall
By David Milliken and Olesya Dmitracova
LONDON, Nov 21 (Reuters) - Britain borrowed much more than expected in October, thwarting finance minister George Osborne in his efforts to reduce the deficit and shunt the economy away from stagnation.
The figures published on Wednesday show weaker businesses - mostly in the oil and gas sector - paying less tax than expected and may undermine government efforts to shore up public support for its policies of spending cuts and tax rises.
The numbers are the last figures to be released before Osborne presents his twice-yearly fiscal update on Dec. 5. After a positive surprise in September, they revert to the borrowing overshoots seen for most of the tax year.
Separately, minutes of the latest Bank of England meeting showed little appetite for more stimulus, cutting off for now that alternative avenue of support, at a time when BoE Governor Mervyn King anticipates weak growth and rising inflation.
The Office for National Statistics said the government's preferred measure, public sector net borrowing excluding financial sector intervention, came in at 8.6 billion pounds ($13.7 billion) in October, up from 5.9 billion pounds in October 2011.
This was well above economists' average forecast of 6 billion pounds, and higher even than the most pessimistic estimate in a Reuters poll of 19 analysts.
A large part of the increased deficit is due to a 10 percent drop in corporation tax receipts, driven by lower profits from energy companies after a 20 percent annual fall in oil and gas extraction in the 12 months to September due to extra maintenance and long-term decline in North Sea reserves.
"The Chancellor faces some big fiscal challenges, because what's happening is that stalling growth is pushing up the deficit. The data tells the picture of a stagnant economy," said Rob Wood, UK economist at Berenberg Bank.
Britain's government has made reducing a budget deficit that peaked at more than 11 percent of national income its top political priority since it came to power in May 2010, but slow economic growth means this goal keeps receding.
The central bank seems unlikely to offer any further economic boost in the short term either. Its policymakers voted 8-1 against more asset purchases this month and ruled out an interest rate cut.
Britain emerged from its second recession since the 2008 financial crisis in the third quarter of this year, but the BoE and most economists say underlying growth is weak and unlikely to pick up strongly over the coming year.
Households are suffering from inflation eating into their disposable income. At 2.7 percent, it remains above the BoE's 2 percent target, though below September 2011's 5.2 percent peak.
BoE policymakers say they are reluctant to approve more asset purchases to boost the economy, in part because they are concerned that weak productivity means further stimulus is likely to translate into inflation rather than growth.
News from the corporate sector has been mixed. British bicycles-to-car-parts group Halfords posted a 23 percent slump in first half profit earlier on Wednesday, though clothing retailer Arcadia reported a 25 percent rise in underlying profit, albeit on flat full-year sales.
The government will be eyeing any upturn in corporate profits closely. For Osborne to meet his 2012/13 borrowing goals, public sector net borrowing needs to fall 1.2 percent to 120 billion pounds, but so far it is 7.4 percent higher than at the same point in 2011, the statistics office said.
In cash terms, borrowing so far this year is 5.0 billion pounds up on a year earlier at more than 73 billion pounds, compared with the 2.6 billion pound overshoot estimated by the ONS last month.
However, Britain's finance ministry said public spending was under control, even if some tax receipts were weaker than hoped.
"The economy is healing, but it still faces many challenges. These numbers illustrate that, but also show the government's plans to bring spending under control are on track for the year," a finance ministry spokesman said.
When it came to power in 2010, the government had originally planned to eliminate the structural budget deficit by 2015 with spending cuts and tax rises.
But a weak economy has forced it to extend austerity by another two years and Prime Minister David Cameron has warned it could take even longer - until 2020.
After the borrowing figures, the opposition Labour Party repeated its view that the pace of deficit reduction was self-defeating.
"By squeezing families and businesses too hard, choking off the recovery and so pushing borrowing up not down, the government's economic plan has completely backfired," Labour Party finance spokeswoman Rachel Reeves said.