By Andy Bruce and William Schomberg
LONDON (Reuters) - Finance minister Philip Hammond missed his target for bringing down Britain's budget deficit in the 2018/19 financial year, data showed on Wednesday, even as the shortfall fell to its lowest in 17 years.
Opening the way for a possible relaxation of Hammond's tight grip on spending, borrowing in the 12 months to the end of March totaled 24.7 billion pounds ($31.9 billion), 41 percent less than in the 2017/18 tax year.
However, the deficit was higher than the forecast of 22.8 billion pounds made by Britain's independent budget office last month.
Wednesday's numbers were provisional and could be revised.
As a share of economic output, the deficit fell to 1.2 percent, its lowest since the 12 months to March 2002 and down from nearly 10 percent during the depths of the global banking crisis a decade ago, the Office for National Statistics said.
Following publication of the figures, Hammond said the government looked on track to meet its goal of reducing overall government debt levels as a percentage of the economy by 2021 and keeping the core budget deficit below 2 percent.
"The key thing for me is that we are, probably for the first time in a decade, in a position where we have choices," Hammond told lawmakers in parliament's Treasury Committee.
Nevertheless, in March alone, the budget deficit stood at 1.7 billion pounds, above all forecasts in a Reuters poll of economists that had pointed to borrowing of 400 million pounds.
The figures showed tax receipts continued to grow strongly in March, but higher government spending accounted for the wider-than-expected deficit, mostly down to purchases of goods and services.
"While there are many political and economic uncertainties ahead, the fact that the public finances are in their best shape for 17 years should give (Hammond) some room for maneuver in his Autumn Budget and Spending Review," PwC chief economist John Hawksworth said.
Britain's debt agency said it planned to sell an extra 3.7 billion pounds of government bonds in the current 2019/20 financial year, or 117.8 billion pounds in total, based on the public finances data published on Wednesday.
Hammond has held out the prospect of billions of pounds of extra public spending or tax cuts if parliament approves a deal on the UK's withdrawal from the European Union agreed between Prime Minister Theresa May and other EU leaders.
But lawmakers within the Conservative Party of May and Hammond remain divided on the deal, leading to the EU extending the Brexit deadline until the end of October.
Hammond has said he could also use his "fiscal headroom" to help the economy weather a no-deal Brexit shock.
(Reporting by Andy Bruce; Editing by Gareth Jones)