Britain’s economy is expected to grow more than expected this year and next, partly thanks to the boost from the chancellor’s big fiscal spending plans, the government’s official forecaster has said.

However, the fiscal watchdog also cut its long-term economic growth projections as the government increased fiscal measures.

The Office for Budget Responsibility (OBR) predicts that the UK’s gross domestic product (GDP) will increase by 1.1% in 2024.

This reflects an upward revision from its previous forecast of 0.8% and is higher than recent projections from the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF).

The OBR said the new round of fiscal policies, which will see spending increase by almost £70 billion each year, “will provide a temporary boost to GDP”.

However, he said that this positive impact would “diminish to the point of disappearing” over the next five years.

New forecasts also show the economy is expected to grow 1.8% in 2026, 1.5% in 2027 and 1.5% again in 2028.

This represents a downward revision to expected economic growth, with the forecaster pointing to growth of 2% for 2026, 1.8% for 2027 and 1.7% for 2028 in the previous government’s spring budget statement. .

It came as Chancellor Rachel Reeves announced a £40 billion tax rise, including a £25 billion raid on employers’ social security contributions and a rise in corporate tax. capital gains.

The OBR said the tax increases would partly lead to a “crowding out” of business investment, which would have a negative impact of 0.2% on economic growth in the medium term.

The forecaster also said the latest financial policy measures are expected to leave the government with a reserve of £9.9 billion to balance the state’s finances by 2029/30.

This is significantly lower than the average margin of £28 billion available to previous chancellors and would not have been achieved without further changes to its fiscal debt rules.

The new forecasts also show that UK inflation is expected to be higher than expected over the next four years and remain above the Bank of England’s target rate.

Ms Reeves, presenting her first Budget, told Parliament on Wednesday that the forecaster predicted consumer price index (CPI) inflation would average 2.5% this year.

This comes as inflation fell to a three-year low of 1.7% in September after a sharp fall in petrol prices.

Ms Reeves also confirmed that the Government would maintain the Bank of England’s inflation target of 2%.

The OBR’s latest forecasts also indicate that inflation will reach 2.6% in 2025, significantly above the previously forecast rate of 1.5%.

It also increased projections for the following three years, with inflation expected to 2.3% for 2026, 2.1% for 2027 and 2.1% for 2028.