The Office for Budget Responsibility (OBR) projected that the economy will shrink by less than expected and inflation will fall more sharply than previous forecasts, in an improved economic outlook in the near term.

Declining wholesale energy prices and cooling global inflation have improved the position of the Treasury compared with the last budget statement in November.

Previously, the OBR said the UK was due to enter a recession in 2022 and shrink by 1.4 per cent in 2023.

LONDON, ENGLAND - MARCH 15: UK Chancellor Jeremy Hunt leaves Downing Street with the despatch box after presenting his spring budget to parliament on March 15, 2023 in London, England. Highlights of the 2023 budget are an increase in the tax-free allowance for pensions which the Chancellor hopes will stem the number of people taking retirement, a package of help for swimming pools affected by the increase in energy bills and changes to childcare support for parents on universal credit. (Photo by Carl Court/Getty Images)

However, the fresh projections show that the economy is set to avoid a technical recession – which means two consecutive quarters of decline – and shrink by 0.2 per cent this year as a whole.

It is then due to grow by 1.8 per cent in 2024, 2.5 per cent in 2025 and 2.1 per cent in 2026 as growth cools, a downgrade on the OBR’s initial forecasts which predicted growth as high as 2.7 per cent in 2026.

The OBR also said on Wednesday that the UK remains on course for the sharpest drop in living standards on record over the two years to the end of March next year.

The forecaster said the drop would be lower than previously expected but that real households’ disposable income per person would still tumble 5.7 per cent over 2022/23 and 2023/23.

Households will therefore feel the pinch more than at any point since 1957, according to the OBR.

On Wednesday, the forecasts also showed a sharper drop in inflation this year than previously predicted by both the OBR and the Bank of England.

Mr Hunt told MPs: “In the face of enormous challenges I report today on a British economy which is proving the doubters wrong.”

Later, he received a warm welcome from Tory MPs as he attended the backbench 1922 Committee.

Entering the meeting, he told reporters he would inform party colleagues “about the way this is going to help them win an election”.

“There is no path for us without a reputation for economic competence,” he said.

However, senior Tory Jacob Rees-Mogg warned the Government that hiking corporation tax is “not a good approach” to encouraging investment in the UK.

The former business secretary hit out at the planned tax rise for companies while describing tax allowances in the Budget as an attempt to “salami-slice” the hike to “pretend it’s not much of a rise”.

Businesses were given a three-year temporary tax break that will allow investment in plant and machinery to be written off against corporation tax – which will rise from 19p to 25p in April – costing £10.7 billion in 2024-25.

Sir Keir Starmer said: “After 13 years of his Government, our economy needed major surgery, but like millions across our country, this Budget leaves us stuck in the waiting room with only a sticking plaster to hand.

“A country set on a path of managed decline, falling behind our competitors, the sick man of Europe once again.”

Labour’s shadow chancellor Rachel Reeves has said the Chancellor’s budget is “just papering over the cracks”.

“This Budget was a chance for Government to unlock Britain’s promise and potential,” she tweeted.

“But with growth downgraded, the hit to living standards the largest since records began, and a tax cut for the top 1 per cent, they are just papering over the cracks.

“Labour will build a better Britain.”

UK set to avoid recession as living standards set to plummet