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UK economy goes from 'zero to hero' but don't expect giveaway

Wednesday, 4 Dec 2013 | 5:18 AM ET
What to expect from the UK Autumn Statement
Wednesday, 4 Dec 2013 | 3:45 AM ET
Andrew Sentance, senior economic adviser at PwC, discusses what to expect from U.K. Chancellor George Osborne's Autumn Statement.

The U.K. economy has gone from strength to strength over the last year, but a former Bank of England policymaker said the country's finance minister George Osborne would make no concessions in his annual "Autumn Statement" this week.

"I think the chancellor will emphasize that he believes his economic policies are working," Andrew Sentance, a former member of the Bank of England's monetary policy committee, told CNBC Europe's "Squawk Box" on Wednesday. "The U.K. economy appears to have gone from zero to hero in the space of six to nine months but the reality is much less changed than that."

Not only has the latest economic growth data for the third quarter show that the U.K. economy grew 0.8 percent (while the euro zone grew 0.1 percent in the same period) but a range of figures -- from consumer confidence to manufacturing and housing sector activity -- have also shown positive trends as 2013 progressed.

When Osborne delivers his annual statement on the state of the U.K. economy on Thursday, he is widely expected to seize upon the U.K.'s surprising economic turnaround in 2013. Osborne will also doubtless use the figures to answer his international and domestic critics that his swingeing program of deficit reduction introduced in 2010 was holding back the country.

(Read more: UK's economic growth picks up in third quarter)

Not only did the opposition Labour party call his economic policies economically and socially damaging but the International Monetary Fund (IMF) warned Osborne to ease off his austerity measures and do more to promote growth.

In 2012/13, the general government deficit (or net borrowing) was £82.1 billion, equivalent to 5.2 percent of gross domestic product (GDP) – down from 7.6 percent of GDP in 2011/12, according to data released by the Office for National Statistics (ONS) in October. Ever confident, Osborne announced in September that he was aiming to run an overall budget surplus by 2020.

Sentance told CNBC that Osborne would not miss the opportunity to promote the apparent economic turnaround but warned that there was still a "relatively subdued growth trend."

However, there is unlikely to be any signs of relaxation in Osborne's deficit program.

(Read more: UK economy ingood shape, more positive news unveiled)

"I think we're going to see better news on growth and public borrowing but I think we're going to see in terms of overall measures is a pretty balanced package, " Sentance said.

"There may be what look like giveaways in terms of help for energy consumers but we might also see some tightening of the tax system, which means the Treasury will claw that back in some other way. In terms of the big picture, having missed his borrowing targets for a few years I think the chancellor is going to want to bank the extra money coming in."

Some of the key issues that Osborne is expected to address in his annual statement on the state of the U.K economy and his plans for the year ahead, are energy, personal tax allowances, public spending, capital gains taxes, business rates and the housing market.

(Read more: Goldman: These are UK's two long-term weaknesses)

Sentance said that although there were likely to be upwards growth revisions in the statement, the chancellor should be "cautious" and that the budget surplus target was still "a long way off."

"That's right at the end of the next parliament and there's a lot of change that could take place in the U.K. economy before then - but I think it should be the direction of travel to get the budget balanced."

With national elections coming up in 2015 and much of the public pressured by Osborne's welfare spending cuts, the annual budget statement is a politically charged event that could provoke criticism from the Labour opposition and public.

Sentance said that Osborne would be wise to "hold out the promise of a better period if the conservatives are elected in the next parliament."

"I think to try to give away a lot of money ahead of the next parliament would be a mistake – it would look like the government is changing its strategy – but I think he will try and hold out the promise that if the government remains in power then things improve and people will benefit."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

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