Pound falls
iStock

Britain's public finances deficit narrowed by less than expected in December, but the Treasury could still hit its target for the year after November's figures were revised to show a better performance than initially thought.

According to data released by the Office for National Statistics (ONS) on Tuesday (24 January), public borrowing last month declined 5% month-on-month to £6.9bn ($8.6bn), compared with expectations for a £6.7bn figure.

Meanwhile, the previous month's deficit was revised from £12.6bn to £11.3bn, which brought the borrowing tally for the first nine months of the 2016-17 tax year up to £63.8bn, 14.3% lower than in the corresponding period 12 months earlier.

The Chancellor Philip Hammond has previously stated he aims to cut the full-year budget deficit by a tenth to £68bn, which would leave Britain's shortfalls at approximately 3.5% of economic output, one of the largest deficits among the world's most powerful economies.

The ONS added income tax returns in January are expected to drive the budget into surplus for the month, meaning the full year deficit could fall between £64bn and £65bn. However, while the figures would be lower than November's forecast of £68.2bn, it would still be well above the Office for Budget Responsibility's previous forecast of a £55.5bn deficit at the time of the March Budget.

"If the trend seen in the first nine months of 2016 is maintained in the final three months, the Chancellor therefore might modestly reduce the size of the fiscal consolidation in the March Budget," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"We continue to think, however, that progress in reducing the budget deficit over coming years will be slower than outlined in the Autumn Statement."

Hammond has already shelved the plan of his predecessor George Osborne of achieving a budget surplus by the end of the decade, preferring instead of giving the UK economy some room for manoeuvre as Britain prepares to leave the European Union.

PwC chief economist John Hawksworth added while the revised figures would provide a much-needed boost for the Chancellor, keeping the deficit under control remained a difficult task.

"The somewhat better outlook for the public finances is consistent with the somewhat better than expected performance of the economy as a whole since the Brexit vote," he said.

"But the budget deficit is still uncomfortably high, so this will not give the Chancellor that much additional room for manoeuvre in his Budget on 8 March."