But the Ernst & Young ITEM Club said George Osborne must resist temptation to offer give-aways in this week’s Budget and warned it was still early days on the “long and challenging road” to balancing the public finances.
ITEM, which is the only forecasting group to use the Treasury model of the economy, said public sector borrowing was on track to undershoot its target by around £8 billion in the financial year to the end of this month.
The Office for Budget Responsibility, the Government’s watchdog, predicted borrowing of £148.5 billion in November, but the ITEM Club has forecast £140.2 billion with tax receipts coming in around £4 billion ahead of expectations.
Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said it was still too early to judge whether the improved fiscal position can be sustained over the rest of the parliament, particularly as the recent surge in commodity prices has added more uncertainty to economic growth prospects.
He said: “We are at the start of a very long and treacherous road and there will be many more obstacles to negotiate before the government’s finances are restored to balance. That said we think the Chancellor, based on our current forecast, should meet his fiscal mandate.
“But for now there are unlikely to be any spring give-aways in this week’s Budget.”
The ITEM Club expects the Chancellor to achieve his fiscal mandate of restoring the cyclically-adjusted budget to balance by 2015/16 by a narrower margin of around 0.5% of GDP.
Mr Goodwin added: “Given how wary the Chancellor has been of sending the wrong signals to the financial markets, we expect him to hold back the bulk of the windfall to guard against potential slippage later on.”