Britain's Labour government may have leeway to boost spending ahead of a tight election expected within weeks after public borrowing rose less than forecast in February.
The country is still heading for its biggest deficit ever after borrowing hit a record high for the month, Office for National Statistics data showed on Thursday.
But the figure of 12.361 billion pounds ($18.88 billion), while topping the 8.766 billion pounds of February 2009, was well below economists' expectations of 14.75 billion.
Any sign that government borrowing is not as terrible as previously thought would be a boost for the Labour Party, as its management of the public purse has been fiercely criticised by the opposition Conservatives.
Labour finance minister Alistair Darling delivers his budget on Wednesday and may now have room for some giveaways to sway swing voters ahead of an election expected on May 6 that polls suggest could produce a hung parliament.
Given concerns about the stability of Britain's triple-A credit rating and warnings about the size of the deficit, however, he may prefer to settle for the credibility-building chance to say borrowing has come in better than his forecasts.
"February's public finances have provided Alistair Darling with a very timely boost ahead of next Wednesday's budget," said Capital Economics economist Jonathan Loynes. "He now looks likely to have a little wriggle room in the budget to either cut borrowing or fund a few pre-election sweeteners.
"We suspect that he will choose the latter. Make no mistake, though, a prolonged and painful fiscal squeeze still lies ahead."
WRIGGLE ROOM
British government borrowing, forecast to reach a record high of more than 12 percent of gross domestic product this year because of the effects of an 18-month recession and government stimulus measures, has been hitting monthly records all year.
The cumulative figure for the tax year to date rose to a high of nearly 132 billion pounds, with just one month left of the tax year, comparing favourably with Darling's full-year forecast of 170.4 billion including financial interventions.
March, the last month in the tax year, is traditionally a heavy borrowing month because spending tends to be higher than average and tax receipts lower. In 2009 borrowing rose to 20.0 billion pounds in March from 8.8 billion in February.
The Treasury played down the chances of a big undershoot announcement at the budget, saying the figures were "broadly in line" with its estimates but markets will speculate that the deficit will turn out better than estimated.
Economists at accountancy firm PricewaterhouseCoopers estimated the deficit would be about 5 billion pounds less than forecast, and sterling and British government bond futures rose after the better-than-expected February figures.
Darling has pledged to halve the deficit over four years but the Conservatives, who have a good chance of ending 13 years of Labour rule, want to do more than that and to start cutting earlier.
The opposition warns that failing to take tougher action will endanger Britain's credit rating, damage investor confidence and drive up borrowing costs but the centre-right party has so far failed to give much detail of its plans.
Labour, which is partly banking on a strong economic recovery to bring down the deficit, says the opposition's ideas would threaten the recovery.
Britain emerged from recession at the end of last year but there are signs that the rebound could turn out to be weaker than hoped for.
Lending to British businesses, seen as crucial to a sustainable recovery, slumped at a record annual pace in January, the Bank of England said on Thursday.
And manufacturers fared worse than expected in March, according to figures from the Confederation of British Industry.
