The size of the UK economy will finally return to its pre-crisis peak later this year, official forecasts revealed in the Budget today.
Figures from the independent Office for Budget Responsibility (OBR) also nudged up growth forecasts for this year and next, but cut them for 2017 and 2018.
The OBR delivered predictions of lower borrowing over the next few years but Chancellor George Osborne admitted that the underlying structural deficit was falling no faster than previously forecast despite higher growth.
Gross domestic product (GDP) is now expected to increase by 2.7% this year, up from a previous prediction of 2.4%. For 2015 it is expected at 2.3%, up from 2.2%.
Latest GDP figures showed the economy remained 1.3% below the level at which it peaked early in 2008.
But Mr Osborne said: “Later this year, the OBR expects the economy to reach the point where it was, finally larger than before it collapsed six years ago.”
However, growth in 2016 is expected at 2.6%, as previously forecast, while in 2017, the figure has been cut from 2.7% to 2.6%, and for 2018 from 2.7% to 2.5%.
Meanwhile, the borrowing forecast for the current financial year 2013/14 has been shaved from £111 billion in the OBR’s December forecast to £108 billion.
For 2014/15 it has come down to £95 billion from £96 billion, for 2015/16 to £75 billion (from £78 billion), for 2016/17 to £44 billion (from £51 billion), for 2017/18 to £17 billion (from £23 billion).
It is still on course not to reach surplus until 2018/19, but this amount is now expected to be higher at £5 billion (up from £2.2 billion).
Mr Osborne’s update on the underlying structural deficit was less rosy - and may provoke fears of a further austerity squeeze.
He said: “While the underlying structural deficit falls, it falls no faster than was previously forecast, despite higher growth.”
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Mr Osborne told MPs: “The economy is continuing to recover and recovering faster than forecast.”
He said the effect of the upgraded growth forecasts meant the size of the economy would be £16 billion bigger than was predicted four months ago.
The Chancellor said no major economy in the world was growing faster than Britain - with growth ahead of Germany, Japan and the US.
Mr Osborne also said the OBR was now predicting earnings to increase faster than inflation this year - meaning workers will finally start to see their pay packets grow in real terms.
The Chancellor said the country still “borrows too much” but added: “As a nation, we are getting on top of our debts.”
He said the new fiscal forecasts meant Britain would be borrowing £24 billion less than was last forecast, more than the annual budget for the police and criminal justice system.