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Britain seen growing faster than expected in 2014


Britain's Chancellor George Osborne revealed that the growth forecasts for the U.K.'s economy had been upped for this year and next, as he presented his budget to parliament on Wednesday.

The independent Office for Budget Responsibility (OBR) said the economy looked set to grow by 2.7 percent in 2014 - an increase from its December forecast of 2.4 percent - and by 2.3 percent in 2015, up from 2.2 percent. For 2016, the growth forecast remained at 2.6 percent.

But despite these upgrades, Osborne said he was sticking to an austerity agenda.

(Live blog: UK budget: Latest news, reaction and analysis)

"I have never shied away from telling the British people about the difficult decisions we face - and just because things are getting better, I don't intend to do so today," the chancellor said in his annual speech.

Osborne added that the OBR had revised down the U.K.'s deficit for every year of its forecast. In 2013/2014, the country is now expected to have a budget deficit of 6.6 percent of gross domestic product (GDP), down from 6.8 percent, with that percentage decreasing until it hits 2.4 percent in in 2016/2017 - down from 2.7 percent.

The budget came after data revealed that the number of people in employment in the U.K. hit the highest level since records began in the three months to January, although the jobless rate held steady at 7.2 percent.

The number of people claiming unemployment benefits fell more than expected in February to a total of 1.17 million, according to the Office for National Statistics. This marked a fall of 34,600 from January - more than the 25,000 decrease forecast by economists polled by Reuters.

CARL COURT | AFP | Getty Images

A hike in self-employment helped push the total number of people with jobs to a new record of 30.19 million between November 2013 and January.

(Read more: European market update)

But it wasn't enough to shift the unemployment rate from 7.2 percent - the level to which it rose in the three months to December, bringing to a halt the sharp decline in the country's jobless rate.

Howard Archer, chief U.K. economist at IHS Global Insight, described the figures as a "pretty robust set of labor market data overall," but highlighted that there were signs the rate of improvement had slowed slightly since the beginning of the year.

"It seemed unlikely that the labor market could keep on improving at the very rapid rate seen in the latter months of 2013," he said in a note.

"We suspect that a significant number of more confident companies may have taken on workers earlier than they have really needed them in recent months – in anticipation that the U.K. really is set for a period of sustained, healthy growth, and to ensure that they get potentially the best staff available."

Forward guidance shift

The unemployment rate has lost some significance since the Bank of England (BoE) revised its forward guidance.

(Read more: UK unveils 'world's most secure coin')

Last summer, bank Governor Mark Carney said that only once the unemployment rate hit 7 percent would the BoE look to hike interest rates. He predicted that threshold would be reached in 2016, but in the three months to November the rate had already fallen to 7.1 percent.

At the bank's February monetary policy meeting, Carney shifted his guidance, saying the BoE would only start to increase interest rates when a broad range of measures suggested the economy was operating at closer to full capacity.

"Overall, the unemployment and earnings data reinforce our view that the Bank of England will sit tight on interest rates until at least the second quarter of 2015, and very possibly beyond then," Archer added.

"The Bank of England clearly wants to give the economy every chance to develop broader-based recovery."

Wage growth hopes

Despite growing signs of a pick-up in Britain's economy over recent months, wage growth has lagged behind other economic indicators.

Wednesday's data, however, indicated that wage growth was picking up - although it remained below the annual rate of inflation which fell to 1.9 percent in January.

Pay (excluding bonuses) between November and January was 1.3 percent higher than a year earlier - the largest increase since the middle of last year.

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop and Google

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