* UK budget deficit much lower than forecast in February
* Retail sales jump 2.1 pct on the month after snowy January
* Factories upbeat, economists see lower chance of recession
By David Milliken and Christina Fincher
LONDON, March 21 Britain ran a
smaller-than-expected budget deficit in February and retail
sales rebounded, data showed on Thursday, a fillip for finance
minister George Osborne a day after he released dismal economic
The Confederation of British Industry also reported that
manufacturers expect the strongest growth in output since last
April over the next three months.
Deficit reduction is the key economic policy of Britain's
Conservative-led coalition government, which came to power in
May 2010 when Britain's budget deficit exceeded 11 percent of
annual economic output - one of the highest for a major economy.
Weak growth has plagued the government's budget
consolidation plans, but retail sales figures released at the
same time as the borrowing figures suggested at least some
temporary relief after a dismal January for retailers.
The government's preferred measure of Britain's public
borrowing, which strips out some of the effects of its bank
bailouts, showed a deficit of just 2.8 billion pounds ($4.2
billion) in February, the Office for National Statistics said.
This is the lowest deficit for February in the last five
years - albeit one flattered by one-off factors and signs that
some payments may have been pushed into the next financial year
- and is far below average market forecasts of an 8.45 billion
With just one month of the fiscal year to go, borrowing for
the year to date now totals 94.9 billion pounds, excluding a
boost from April's transfer of Royal Mail pension assets.
This puts Osborne on track to undershoot an upwardly revised
forecast of 114.5 billion pounds for 2012/13 - equivalent to 7.4
percent of gross domestic product - released on Wednesday by
government forecasters at the Office for Budget Responsibility.
Sterling rose to a two-week high against the dollar and a
five-week high against the euro after the data.
"It's mildly encouraging and we can see why sterling rallied
on the back of that news," said Tom Vosa, economist at National
Australia Bank. "Public sector borrowing now looks to be in line
with stronger employment growth."
However the economic outlook is still tough. Wednesday's
upward revision to borrowing forecasts was accompanied by a
downgrade to the 2013 growth forecast to just 0.6 percent - half
December's prediction - and prospects for British export markets
in the euro zone are even worse.
Many economists still believe the economy is at risk of
tipping into its third recession in four years - even if
Thursday's retail sales data make this less likely.
Retail sales volumes jumped by 2.1 percent in February -
their biggest rise since March last year and much more than
economists forecast - and are 2.6 percent higher on the year.
A bounce back from a snowy January and strong demand for
tablet computers, sports goods and jewellery helped sales, the
statistics office said.
Still, there were signs of weakness in the retail sector.
Next, Britain's second-biggest clothing retailer, said
trading in its new financial year had been slow.
February's strong public borrowing figures are explained by
a mix of factors - many of which are not set to last.
A 2.6 billion pound transfer of cash from the Bank of
England under a deal to return gilt interest to the government,
and 2.3 billion pounds from the sale of next-generation mobile
phone frequencies flattered the data.
Government departments' spending fell and tax receipts were
up 9 percent on the year in February, outpacing a 2 percent rise
seen over the tax year as a whole.
However, economists warned that the drop in government
departments' spending was due in some cases to postponing
payment of bills until the new financial year starting in April.
"It's likely that we'll see stronger spending next year and
hopefully stronger receipts as well. But the upshot of it is we
shouldn't expect the strength evident in these numbers to
continue. I think next year will be a struggle," said
Peter Dixon, an economist at Commerzbank.
With growth weak, the government only aims to reduce its
budget deficit to 6.8 percent of GDP in the 2013/14 tax year.
That compares with 3.7 percent for 2013 in neighbouring France,
which has been criticised for missing its targets.