Chancellor Forecast Economic Budget Boost

Chancellor George Osborne is set to reveal an improved forecast for the state of the economy during his Budget on Wednesday.

The independent financial watchdog, the Office for Budget Responsibility, is likely to upgrade its previous prediction for GDP from 2.4% to 3% this year, according to a leading economic forecaster.

The EY ITEM Club also says the OBR is expected to revise down down its forecast for borrowing in 2015/16 by £6bn.

The backdrop for the improved economic picture is the plunging oil price, which as well as boosting the outlook for growth will, by reducing inflation, help to reduce some of the Government's spending commitments, says the forecaster.

The Chancellor is also in line for a boost from stronger tax revenues, particularly through VAT receipts as a result of increased consumer spending.

However, EY says the political constraints of coalition means the Chancellor will be unable to use the unexpected windfall for pre-election giveaways at the Budget.

Martin Beck, senior economic advisor to the EY ITEM Club, said: "The OBR's forecast will provide plenty of cheer for the Chancellor, who will be able to trumpet downgrades to borrowing projections and upgrades to the forecast for economic growth.

"A big part of this story is the collapse in the oil price, which has boosted the outlook for growth and, by reducing inflation, helped to reduce some of the Government's spending commitments.

"In a world without political complications, the Chancellor would be expected to take advantage of his fiscal wiggle room and announce some eye catching measures as he delivers his last Budget in this Parliament.

"However, political constraints mean that we can expect a caretaker Budget that keeps things ticking over, with most of the expected windfall banked until after the general election, when any big policy decisions will be made."