* Osborne to present upgraded budget forecasts at 1115 GMT
* Government committed to deficit reduction
* Living standards lag behind strong rebound in growth
By David Milliken
LONDON, Dec 5 British finance minister 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.
"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," he said in a
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 percent this year
and 1.8 percent for 2014. Those forecasts look set to be raised
sharply on Thursday. Last month, the Bank of England predicted
growth of 1.6 percent in 2013 and 2.8 percent 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 percent, 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.
HIGHER TAX RECEIPTS
Strong growth has started to boost tax revenue and
economists polled by Reuters expect borrowing to be revised down
by about 10 billion pounds ($16 billion) in both 2013 and 2014.
A recent sale of government stakes in Lloyds Banking Group
and Royal Mail will further reduce borrowing
needs, though they will not affect the main OBR deficit metric.
"There will be a sense of relief and improved confidence
that things are on the mend," said Brian Hilliard, chief UK
economist at French bank Societe Generale.
Borrowing in the current financial year, which ends in
March, is still likely to amount to nearly 7 percent of GDP.
That is down from 11 percent when the coalition ousted Labour in
2010 but still a big shortfall by international standards and a
reminder of how the British economy has failed to recover the
ground lost to the financial crisis.
Furthermore, the OBR is unlikely to bring forward the
2016/17 date when it expects Britain to achieve a budget surplus
based on the measure long targeted by Osborne, which excludes
investment spending and fluctuations in the business cycle.
Nonetheless, there are signs that credit ratings agencies
may be re-evaluating Britain's prospects.
Standard & Poor's - the only one of the three major agencies
not to strip Britain of its top-notch triple-A status earlier
this year - said on Wednesday that it could put its rating on a
more stable footing if stronger-than-expected growth looked to
have become sustainable.
While the overall shape of Osborne's deficit-cutting plan is
certain not to change, there will be tweaks to tax and spending.
Ministries responsible for welfare, justice and business
will have their spending cut by an extra 1 billion pounds a year
over the next three years, in part to allow lower business
taxation and more investment, as well as free school meals for
more children and a tax break for some married couples.
In a reflection of concerns about a price bubble in London's
property market, Osborne is expected to announce the
introduction of capital gains tax for foreigners who own a
British property which is not their primary residence. There is
also a chance that landlords may no longer be able to claim tax
rebates for mortgage interest.