Chancellor Hammond closes in on budget goal

By William Schomberg and Alistair Smout LONDON (Reuters) - Chancellor of the Exchequer Philip Hammond appears to be on track to meet his target for improving the country's weak public finances this year, potentially giving him a bit of room to ease the squeeze on spending in a budget plan next month. Tax revenues flowed strongly into the government's coffers, data for January showed, prompting Britain's official budget forecasters to say the deficit was likely to come in well below the level they had previously predicted. The data will be a relief for Hammond, who faces the task of bringing down one of the biggest budget deficits among the world's advanced economies. With his first full budget plan due on March 8, he is facing calls from businesses to relax an increase in property taxes and pressure to spend more on a range of public services, from the health service to prisons. But any significant slackening of the purse strings in two weeks' time looks unlikely, given the challenges ahead for Britain's economy as the country leaves the European Union. "Whilst the story for the economy has been so far so good, as Brexit efforts progress, we view it as unlikely that the chancellor uses this budget to mark a notable fiscal loosening," Victoria Clarke, an economist with bank Investec, said. Since taking over the Treasury in the weeks after Britain's shock Brexit vote in June last year, Hammond has said he will aim to turn Britain's budget deficit into a surplus more slowly than his predecessor George Osborne. He is aiming to bring the figures back into the black during the first half of the 2020s. The Office for National Statistics reported a surplus in the public finances of 9.4 billion pounds last month, which is typically when a lot of tax revenues flow into the public coffers. The headline figure was smaller than a forecast for a surplus of 13.8 billion pounds in a Reuters poll of economists. But it was distorted by a change in the way the ONS accounts for corporation tax revenues, which it is now smoothing over the financial year. Under the previous accounting method, the surplus would have stood at a record 15.2 billion pounds. In the first 10 months of the financial year, the deficit stood at 49.3 billion pounds, down a hefty 21.6 percent on the same period a year earlier. Hammond has been aiming to lower the deficit to 68.2 billion pounds - or 3.5 percent of gross domestic product - in the 2016/17 financial year which ends in March. The Office for Budget Responsibility, which makes the projections on which Hammond will base his budget, said the strong tax revenue growth suggested the deficit might fall to about 56 billion pounds. But it warned against assuming that the better-than-expected progress on the deficit would feed through into future years. (Editing by Catherine Evans)