U.K. Budget Deficit Narrows; Retail Sales Fall Most In 15 Months

U.K. budget deficit narrowed more than expected in December on higher receipts, increasing odds of the government to achieve its full year public finance target.

Retail sales declined more than expected in December despite heavy discounting, another report from the Office for National Statistics revealed Friday.

Public sector net borrowing excluding public sector banks dropped GBP 4.3 billion to GBP 7.5 billion in December from GBP 11.7 billion last year. It was expected to decline moderately to GBP 10.5 billion.

Consequently, the financial year-to-date borrowing decreased GBP 11.0 billion, or 12.9 percent to GBP 74.2 billion.

December's much improved public finances give the Chancellor George Osborne a fighting chance of meeting his 2015/16 targets, although he will still need a pretty stellar performance through January-March, IHS Global Insight Economist Howard Archer, noted.

If the Chancellor is to meet the target, there will have to be an overall surplus of GBP 5.3 billion between January and March, Archer said.

Central government receipts climbed 3.6 percent, while expenditure slid 1.8 percent in December from last year.

Retail sales fell 1 percent in December from November, when it grew 1.3 percent, the ONS said. This was the biggest fall since September 2014, when sales slid 1.1 percent. Economists had forecast a 0.3 percent drop for December.

Excluding auto fuel, retail sales dropped 0.9 percent after rising 1.3 percent in the prior month. This was larger than the 0.3 percent fall forecast by economists.

Food store sales climbed 2 percent, while non-food store sales fell 3.5 percent. Within non-food store sales, clothing and footwear sales plunged 6.2 percent as mild weather weighed on demand.

On a yearly basis, sales volume including auto fuel advanced 2.6 percent, but slower than November's 4.5 percent increase and the 4.4 percent expected growth. Nonetheless, sales expanded for the 32nd consecutive month in December.

Likewise, growth in sales excluding auto fuel eased to 2.1 percent from 3.4 percent. Economists had forecast an annual growth of 3.5 percent.

In 2015, the quantity bought in the retail industry was estimated to have increased by 4.5 percent.