Cuts will continue despite growth as Chancellor warns about scale of deficit

The warning comes after Chancellor George Osborne admitted that the structural deficit will remain stubbornly high, offsetting improved growth figures from the independent Office for Budget Responsibility (OBR).

Mr Osborne said better expected gross domestic product (GDP) growth for the coming years from the OBR meant output would be £16bn higher than expected – although figures have been revised downwards for 2017 and 2018.

The Chancellor also hailed figures suggesting the Government would run smaller annual deficits, meaning it will be borrowing £24bn lower than previously thought – enough to run the police and criminal justice system for a year.

But the OBR said the improvements were cyclical, that is, a result of the economic cycle which is currently in a growth phase, rather than structural, that is, in the way the Government balances its books through tax and spending. The Government is still on course to meet its fiscal mandate to balance the structural budget, and is now expected to be in surplus by 1.5 per cent of GDP in the 2018/19 financial year.

This has been revised down slightly from a 1.6 per cent surplus predicted at the time of Mr Osborne’s Autumn Statement in December. While not a major change, it does suggest that despite his boasts of better economic growth than any other major economy, as well as real wages finally expected to climb, the Chancellor will have little room to change course on austerity.

Mr Osborne told MPs: “While the underlying structural deficit falls, it falls no faster than was previously forecast, despite higher growth.”

GDP is now expected to increase by 2.7 per cent this year up from a previous prediction of 2.4 per cent.