British Chancellor to declare austerity push is paying off

British Chancellor to declare austerity push is paying off

LONDON - Chancellor George Osborne is set to announce a turning point in his battle to fix the country's public finances on Thursday, but falling living standards mean he cannot declare victory.

A sudden pickup in economic growth means Osborne's goal of fixing Britain's finances is no longer out of reach and he is set to announce the first big fall in projected public borrowing since the coalition took power in 2010 when he delivers a half-yearly update on the budget.

But with Britons due to go back to the polls in 17 months' time, he is also under pressure to help their personal finances.

The opposition Labour Party is campaigning on the idea of a "cost of living crisis" after several years of prices rising faster than wages. Household disposable income is at its lowest level in a decade. Labour accuses Osborne of making the economic downturn worse by insisting on big spending cuts.

Prime Minister David Cameron on Sunday announced plans to fund unpopular environmental levies on energy bills through general taxation, a response to Labour's calls for a state-imposed freeze in household fuel bills.

But on Wednesday, Cameron played down expectations of new tax cuts and stressed his government was determined to eliminate the budget deficit.

His government also flagged plans to raise the state pension age to 68 in the mid-2030s, a decade earlier than previously expected, to offset the impact of improving life expectancy as it seeks to cut its pension bill.

"If the economy continues to grow and, as it were, the sun continues to shine, we should be fixing the roof when the sun is shining, as the last government failed to do," Cameron said in a television interview.

The outlook is certainly brighter than it was when the government's Office for Budget Responsibility gave Osborne its forecasts in March, at the time of his annual budget.

Then the OBR predicted growth of just 0.6 per cent this year and 1.8 per cent for 2014. Those forecasts look set to be raised sharply on Thursday. Last month, the Bank of England predicted growth of 1.6 per cent in 2013 and 2.8 per cent next year.

Shortly after Osborne begins speaking to parliament at 1115 GMT, the Bank of England is expected to announce it is keeping its benchmark interest rate at a record low of 0.5 per cent, even as the recovery gathers pace.

The BoE has adopted a new policy, at Osborne's instigation, that aims to dissuade investors from expecting rates will rise until the recovery is much more established.

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