UK budget deficit narrowest since crisis, government just hits target

LONDON, April 23 (Reuters) - Britain's budget deficit in the 12 months to March sank to its lowest since the financial crisis, and the government narrowly met its latest deficit reduction goal, official data showed on Wednesday.

Helped by an unexpectedly big fall in borrowing in the last month of the tax year, public borrowing as a share of economic output fell to 6.6 percent as a share of gross domestic product.

This was down from 7.4 percent in the 2012-13 tax year and the lowest since 2007-08 on the measure preferred by the government's budget watchdog.

Last month the watchdog forecast that the deficit would be 6.6 percent of GDP, after stripping out some one-off costs and payments related to the financial crisis, Bank of England asset purchases and the Royal Mail (Other OTC: ROYMF - news) 's pension plan.

Deficit reduction is the central economic policy of the Conservative-led coalition. It came to power in May 2010 when Britain's budget deficit peaked at 11 percent of annual economic output - one of the highest for a major economy.

Even now, Britain's budget deficit remains well above the estimated 4.7 percent average for advanced economies in 2013 published by the International Monetary Fund last month.

In cash terms, Britain's budget deficit is 6.5 percent lower than in 2012-13 at 107.7 billion pounds, compared to 107.8 billion pounds forecast by the OBR in March.

The OBR has repeatedly revised down its borrowing forecast during the last tax year as growth proved stronger than expected. In March 2013, it forecast borrowing of 120 billion pounds for the tax year just ended.

In March alone, the shortfall stood at 6.693 billion pounds, down sharply from 11.424 billion a year earlier far below analysts' forecasts of a deficit of 10.95 billion pounds, helped by cuts to departmental spending, stronger tax receipts and lower reserves being carried over into the 2014-15 tax year.

Osborne aims to wipe out Britain's overall budget deficit before the end of the decade, if his Conservative Party wins next year's national election.

Osborne's original plans to rein in the deficit were set back by the country's slow economic growth for much of the period since 2010 - something critics say was partly due to cutting spending before the economy was back on its feet.

A stronger than expected recovery that began in 2013 has boosted tax revenues, led by a 37 percent rise in receipts from the stamp duty tax on property and share sales.

Value-added tax was up by 4.5 percent on the year, though receipts from income tax grew relatively modestly, up just 2.8 percent, reflecting slow earnings growth.

Public sector net debt stood at 1.27 trillion pounds in March, equivalent to 75.8 percent of GDP. The OBR has forecast that ratio will peak at nearly 79 percent in 2015/16. (Reporting by William Schomberg and ...)