The Ministry of Defence has denied that the government failed to reach NATO's defence spending target of 2% of GDP.
According to the International Institute for Strategic Studies (IISS), the UK spent 1.98% of GDP on defence last year, around £380 million short of the target.
The claim is embarrassing for Theresa May's government, which has frequently told other NATO countries that they should follow the example of the UK when it comes to defence spending.
The funding gap has come from the economy growing faster than expected.
Only two European countries, Estonia and Greece, have hit the 2% line.
However, the report says that the UK remains the only European state in the top five defence spenders around the world.
US President Donald Trump has frequently criticised the fact that many NATO members don't fully contribute.
Mrs May said she had received assurances from Trump of his commitment to the future of NATO.
A Ministry of Defence says NATO's figures showed the UK spent 2.21% on defence in 2016:
"These figures are wrong: NATO's own figures clearly show that the UK spends over 2% of its GDP on defence. Our defence budget is the biggest in Europe, the second largest in NATO, and it is growing each year as we invest £178 billion in new equipment and the UK steps up globally, with new ships, submarines and aircraft over the next decade."