WASHINGTON (MarketWatch) -- The U.S. current account deficit narrowed slightly to $110.4 billion in the fourth quarter, or 2.8% of gross domestic product, the Commerce Department reported Thursday. The deficit is the lowest since the third quarter of 2011. The narrower deficit in the fourth quarter was accounted for by increases in the surpluses of income and services. Economists had been expecting the deficit to widen to about $112 billion. The deficit in the third quarter was revised up sharply to $112.4 billion from the prior estimate of $107.5 billion. As a percentage of GDP, the deficit is just above the record low of 2.5% set in the second quarter of 2009. The deficit is still down sharply from the peak of 6.5% of GDP in the fourth quarter of 2005. Net financial inflows dropped to $58.4 billion in the fourth quarter from $68.3 billion. For the year, the current account deficit increased to $475 billion, or 3% of GDP, from $465.9 billion in 2011. This is the largest annual current account deficit since 2008. The U.S. has not had an annual current account surplus since 1991.