UK public finances data suggest Hammond likely to hit deficit target

LONDON, Jan 24 - Britain cut its budget deficit by slightly less than expected last month but a better than previously thought performance in November could help Chancellor Philip Hammond to hit his target for the current financial year. Official figures on Tuesday showed public borrowing in December alone fell by 5 percent to 6.9 billion pounds, higher than a median forecast of 6.7 billion pounds in a Reuters poll of economists. But borrowing in the first nine months of the 2016/17 tax year fell by a sharper 14.3 percent to 63.8 billion pounds compared with a year earlier, helped by a smaller than previously reported budget deficit in the month of November. The Office for National Statistics revised the shortfall in November to 11.3 billion pounds from a previous estimate of 12.6 billion pounds. Hammond is aiming to cut the full-year budget deficit by 10 percent to 68.2 billion pounds, which would still leave Britain with one of biggest shortfalls among the world's industrialised nations at about 3.5 percent of economic output. Although the deficit in the year so far is running close to Hammond's target, income tax returns in January are likely to push the public finances into surplus for the month. In the first three months of 2016, the deficit grew by a total of 1 billion pounds, an ONS official said. Britain's budget forecasters had predicted in March that the government would be able to reduce its deficit by more than 20 percent in 2016/17. But in a November update, they reined in their projections for how much progress the government would make because of the impact of June's Brexit vote. The Office for Budget Responsibility said later that Hammond could overshoot even the revised target with only a small deviation from its forecasts. Tuesday's figures suggested rising inflation was adding to the government's debt costs which were up nearly 7 percent in the April-December period. But corporation tax revenues rose nearly 10 percent. Hammond has dropped the goal of his predecessor George Osborne of eliminating the budget deficit by 2020, giving himself leeway to help the economy cope with the slowdown he expects as Britain prepares to leave the European Union. Hammond told Reuters last week he did not plan to use any of this leeway for now, given the signs so far that Britain's economy has held up well to the shock Brexit vote in June. Last year's budget deficit was 4.0 percent of GDP. Public sector net debt jumped in December to its highest level at least since comparable records began in 1997 at 86.2 percent of GDP, reflecting the expansion of the Bank of England's bond-buying programmes to the help the economy. The BoE's actions also pushed up the public sector net cash requirement sharply. (Reporting by William Schomberg and Paul Sandle)