(Bloomberg) -- UK Chancellor Jeremy Hunt received a pre-budget boost after his fiscal watchdog disclosed it was preparing forecasts using data that will potentially improve the public finances and create more room for tax cuts.

The Office for Budget Responsibility said its forecasts will use average market-implied interest rates in the 10 working days to Jan 23, a window that will flatter the numbers as investors have since scaled back expectations of rate cuts. 

It will also incorporate new estimates projecting the population to be bigger than previously thought and upward revisions to personal tax receipts recorded in the latest public finances data.

It suggests the Chancellor would have had even less money for tax cuts without the boost as he tries to find room for giveaways ahead of a general election expected later this year. 

The OBR forecasts will determine how much fiscal headroom Hunt has against his rule that the burden of government debt must be falling in five years.

“The OBR’s forecast assumptions, particularly on interest rates, are definitely favorable,” said Dan Hanson, chief UK economist at Bloomberg Economics. “The signs point to Hunt having more money for pre-election sweeteners than he has so far been willing to let on.” 

Reports suggest the room calculated by the OBR is currently around £13 billion ($16.5 billion), little changed from November and well below the average since the OBR was created in 2010 to end what was seen as political interference in the budget process. However, some economists believe the margin is significantly higher. 

The OBR has so far handed Hunt three of five forecasts as part of the pre-budget process. The second of them, sent on Feb. 14, represented the final “pre-measures” forecast, which captures the effect of changes in the economic outlook since the Autumn Statement in November. It provides the framework for the government to deliver its tax and spending plans. 

James Smith, research director at Resolution Foundation, said that the snapshot used by the OBR is “striking” given it is earlier than usual and was six weeks before the budget on March 6. The think tank expects Hunt to have £23 billion for giveaways next month.

“The combination of the market 10 days predating some recent interest-rate rises, plus having three rounds to work on your policy package will help the Treasury at the margin,” he said. “It’ll give them a little bit more headroom and give them more opportunity to tweak and finesse the policy package.”

On Jan 23, markets were pricing in 86 basis points of Bank of England interest-rate cuts this year, or more than three quarter-point reductions, compared to 65 basis points today. Gilt yields, which determine how much the government pays to finance its borrowings, were also lower than today.

Capital Economics calculated that the Chancellor’s headroom would be around £2.4 billion lower if the OBR used market expectations from the last 10 working days rather than the period in January.

“Market pricing in the 10 working days to 23rd January implied that Bank rate would average 3.4%,” said Ruth Gregory, deputy chief UK economist at Capital Economics.

The OBR also said that it will be informed by the latest ONS projections showing that the population will rise faster than previously thought because of higher levels of net migration. 

Smith said there is “upside news on population” as spending plans are fixed in cash terms and receipts will be helped by having more people in employment.

“The thing that will be going in the other direction is they’re taking on the new Labour Force Survey reweighted data, and that suggests the participation rate is a bit lower,” he added.

A Treasury spokesperson said: “While we will not speculate over whether further reductions in tax will be affordable in the Budget, the economy is beginning to turn a corner.

“We must stick to our plan to reduce debt by growing the economy and being responsible with spending.”

--With assistance from Philip Aldrick.

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