Britain’s budget deficit fell to its lowest since the financial crisis, official data showed today, bolstering the government’s case that it is delivering on a key economic pledge a year before a national election.

The Bank of England, meanwhile, indicated it was not hurrying to raise interest rates, even if its members are somewhat divided about the economic outlook.

The deficit in the 2013-14 tax year fell to 6.6 per cent of gross domestic product from 7.4 per cent in 2012-13 - in line with recent government plans.

It was the smallest shortfall since 2007-08, though well above that of most other advanced economies - including the 3 per cent expected of European Union countries - partly a reflection of how much the government used to rely on massive revenues from banking and housing before the financial crisis.

Britain's Conservative-led coalition came to power in 2010 with a pledge to largely eliminate the deficit that then stood at 11 per cent of GDP. Weak growth since then means finance minister George Osborne is now three years behind on this goal.

However, the economy is starting to turn around. Bank of England staff revised up their growth forecast today, predicting 1 per cent growth in the first three months of 2014 and almost as strong again between April and June.

This is almost double the economy’s long-run average growth rate of 0.5-0.6 per cent a quarter, and economists said Mr Osborne might now have scope to loosen the purse-strings slightly before the May 2015 election.

“With the economy gaining momentum and employment and wages responding, there is likely to be better news on tax revenues through the fiscal year, which could provide the Chancellor with something of a war chest,” said ING economist James Knightley.

The Conservatives trail the opposition Labour Party in the polls by a few percentage points. But any giveaways are likely to be small as Osborne has built his reputation around fiscal prudence. He is targeting a 5.5 per cent deficit for 2014-15.

In cash terms, borrowing in 2013-14 totalled £107.7 billion, 6.5 per cent lower than a year earlier, after March’s borrowing came in below forecast at £6.7 billion.

Tax receipts are up 3.2 per cent on the year, helped by a 4.5 per cent increase in sales tax revenues and a 34 per cent jump in property transaction taxes. Government non-investment spending rose just 1.4 per cent, well below the rate of inflation.

Public sector net debt stood at £1.27 trillion in March, equivalent to 75.8 per cent of GDP. The OBR has forecast that ratio will peak at nearly 79 per cent in 2015/16.

Minutes from the Bank of England’s April 9th policy meeting showed that policymakers were in no rush to dampen the mood by raising interest rates from their record-low 0.5 per cent.

The economy remains smaller than before the crisis, inflation is below target at 1.6 per cent and wages are only just starting to catch up with prices after years real-terms falls.

There was little move in sterling or British government bond prices after the BoE minutes, which largely confirmed expectations that rates are likely to rise in just under a year.

The BoE has said it will only raise rates when the amount of slack in the economy has fallen materially, and April’s minutes did not suggest this was imminent.

April’s minutes reported “considerable uncertainty” among policymakers on how much slack there was, and some disagreement about the inflation outlook.

The BoE’s April meeting came before last week’s publication of data showing a sharp in the unemployment rate to below 7 percent, and next month’s minutes are likely to be more revealing, as they will follow a quarterly BoE forecast update.

One challenge was judging whether a big rise in self-employment since the financial crisis represented an extension of pre-crisis trends, or was merely disguised unemployment.

Other data out today suggested that for manufacturers at least, business boomed over the past three months.

The Confederation of British Industry’s quarterly survey showed the sharpest rise in orders since April 1995, and biggest improvement in manufacturers’ outlook since 1973. (Reuters)