The Office for Budget Responsibility (OBR) has significantly upgraded UK growth expectations to 2% for 2017, after the economy grew by 1.8% in 2016.
In the Spring Budget 2017, Chancellor Philip Hammond revealed the OBR is now predicting growth to reach 2% in 2017, much higher than its November forecast of 1.4%.
However, the OBR's stronger projection for this year has been offset by expectations of lower GDP growth for the two following years. It is expected to fall to 1.6% in 2018, before rising slightly to 1.7% in 2019, as Brexit negotiations take their toll. Growth is expected to reach 2% once again in 2021.
Hammond (pictured) said: "The UK economy continues to astound us with robust growth and a strong labour market. Last year the economy grew faster than the US, Japan and France, and was second only to Germany. Employment is at a record high, and unemployment is at an 11-year low.
"But as we prepare for our future outside the European Union we cannot rest on our past achievements. Our task today is to take the next steps in preparing Britain for a global future…as we build an economy that works for everyone."
Yesterday, the Organisation for Economic Co-operation and Development (OECD) upgraded its outlook for UK growth, forecasting 1.6% in 2017, up from projections of 1.2% in November, as the economy has shown resilience following the Brexit vote.
Turning to inflation, the Chancellor said the OBR's forecast is for a rise to 2.4% this year and 2.3% in 2018, before falling back down to the 2% target in 2019.
That will keep inflation at or above the Bank of England's 2% inflation target for three years, but the Hammond noted real wages are expected to continue rising against this backdrop.
Public sector borrowing down
The OBR has also substantially revised downwards public sector net borrowing costs, forecasting these to be £51.7bn for 2016/17 (£16.4bn lower than previously thought).
However, the Chancellor said this is due to "one-off factors" and is not expected to lead to structural improvement over the longer term, with the overall economic outlook broadly unchanged.
Borrowing is expected to rise again to £58.3bn in 2017/18, before falling again to £40.8bn the following year and reaching £16.8bn by 2021/22.
Meanwhile, the OBR has also lowered its expectations for net debt as a percentage of GDP to 86.6% for the fiscal year 2016/17, expected to peak at 88.8% of economic output in 2017/18 (1.4 percentage points lower than the previous forecast).
In 2018/19, the OBR is still forecasting debt to fall for the first time to 88.5%, coming down further to 86.9% the following year and reaching 79.8% by 2021/22.
In reaction to the statement, sterling began to rise slightly against the dollar to $1.2168 and to €1.1539 against the euro, having traded lower against both currencies ahead of the Budget. The FTSE 100 was down 0.16% at 7,327, slightly higher than its level before the announcements.