* Budget deficit falls to 6.6 pct of GDP, lowest since 07/08
* Economists eye pre-election "war chest" for Osborne
* BoE minutes show policymakers divided over job market
* CBI reports brightest outlook for factories in 40 years
(Wraps in BoE minutes and CBI industrial orders)
By David Milliken and William Schomberg
LONDON, April 23 Britain's hefty budget deficit
has fallen to its lowest since the financial crisis, official
data showed on Wednesday, helping the government argue it is
delivering on a key economic pledge a year before a national
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 percent of
gross domestic product from 7.4 percent 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
percent 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 percent 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 on Wednesday,
predicting 1 percent 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 percent a quarter, and economists said 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 percent deficit for 2014-15.
In cash terms, borrowing in 2013-14 totalled 107.7 billion
pounds ($181.2 billion), 6.5 percent lower than a year earlier,
after March's borrowing came in below forecast at 6.7 billion
Tax receipts are up 3.2 percent on the year, helped by a 4.5
percent increase in sales tax revenues and a 34 percent jump in
property transaction taxes. Government non-investment spending
rose just 1.4 percent, well below the rate of inflation.
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.
Minutes from the Bank of England's April 9 policy meeting
showed that policymakers were in no rush to dampen the mood by
raising interest rates from their record-low 0.5 percent.
The economy remains smaller than before the crisis,
inflation is below target at 1.6 percent 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
Other data out on Wednesday 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.
($1 = 0.5944 British Pounds)
(Additional reporting by Andy Bruce Editing by Jeremy Gaunt)