Chancellor Jeremy Hunt will present his Budget this month amid expectations that the UK will experience a shorter, shallower economic downturn than expected in the autumn.

Borrowing this year and next could also come in around £30 billion lower than previously forecast, owing largely to lower energy prices and interest rates than previously expected and stronger-than-expected tax revenues.

However, this improvement might not last, says the Institute for Fiscal Studies, which says savings on energy support can only be temporary and there is no room for tax cuts or spending increases in the 15 March budget.

In a pre-Budget paper it says the Chancellor will doubtless also need to find £6 billion a year to freeze fuel duties.

“In any case, any improvement in borrowing since November will still represent a deterioration on the forecast from a year ago,” says the IFS.

It adds that the case for permanent tax cuts or spending increases that are not offset elsewhere is no stronger now than in the autumn.

Isabel Stockton, senior research economist at the IFS, said: “It is difficult to see an end to public sector pay disputes and industrial action that does not involve the Treasury providing additional funding to departments.”