Watchdog says growth higher than expected

The Office for Budget Responsibility (OBR) has raised its 2010 growth forecast to 1.8 per cent, up from its June forecast of 1.2 per cent.

It also expects that 330,000 public sector workers will lose their jobs over the next four years, less than the 490,000 it earlier predicted.

However, the OBR has lowered its growth estimates for the next two years and warned that Britain's economic recovery from its 18-month recession will be the slowest since the Second World War.

The government-appointed watchdog said it changed its public sector job forecast because the Government had put more emphasis on benefit cuts and less on departmental spending cuts.

Its chairman, Robert Chote, also said the creation of one million private sector jobs in that time would "more than offset" falling public sector employment.

George Osborne welcomed the forecasts, saying Britain was back on track and the coalition's plan to "balance the books" was working.

The Chancellor said it was the OBR's view that there would be no double-dip recession. He told MPs: "Britain is on course both to grow the economy and balance the books - something some people repeatedly said would not happen."

But Labour's Shadow Chancellor, Alan Johnson, criticised the Government, saying it was taking "an unprecedented gamble with people's livelihoods and the country's future".