The UK budget deficit decreased to its lowest August level since 2007 on higher sales tax, official data revealed Thursday.

Public sector net borrowing excluding interventions decreased by GBP 1.3 billion from the previous year to GBP 5.7 billion in August, the Office for National Statistics reported.

This was the lowest August borrowing since 2007. The deficit was also well below the expected level of GBP 7.1 billion.

As a result, the budget deficit for the first five months of the fiscal year fell by GBP 0.2 billion to GBP 28.3 billion. The government forecast budget deficit of GBP 58.3 billion for the year ending March 2018.

In August, revenues increased by 3.5 percent year-on-year as VAT advanced 5.6 percent, which was the highest on record for August. Due to timing, self assessed income tax fell 1.2 percent.

Meanwhile expenditure dropped 0.1 percent with interest falling 3.8 percent.

Even assuming there is a bit of a deterioration, the Chancellor is still likely to have some extra money to play with - on top of the scope already contained within his fiscal mandate, Paul Hollingsworth, a UK economist at Capital Economics, said.

As a result, some easing back on austerity to help households struggling in the face of the squeeze on real incomes looks likely, he noted.

Public sector net debt totaled GBP 1,773.3 billion at the end of August, which was equivalent to 88.0 percent of gross domestic product, an increase of GBP 150.9 billion on August 2016.

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