05/02/2014 07:22 GMT | Updated 05/02/2014 07:59 GMT

George Osborne's Austerity Could Be 'More Than UK Economy Needed'

Stefan Rousseau/PA Wire
Chancellor of the Exchequer George Osborne addressing the Open Europe conference in London today where he has raised the prospect of Britain leaving the European Union if the 28-nation bloc fails to undertake fundamental reforms to improve competitiveness, create jobs and protect the rights of countries which are not in the single currency.

George Osborne's economic austerity could be "applied in a dose higher than the patient actually needs" to recover, economists have warned.

In their latest report, the Institute for Fiscal Studies pointed to positive forecasts by Oxford Economics to argue that the UK economy could grow by more than predicted.

"That implies that the economy would be able to sustain several years of above trend growth beyond 2018–19 and that we could plan for much less fiscal consolidation as more of the deficit would prove to be a temporary phenomenon."

The prediction comes as the IFS warned the chancellor that he was only 40% of his way through a planned programme of spending cuts.

Oxford Economics predicts that the UK will grow by 2.6% this year, with growth set to be more balanced than in 2013. The level of predicted growth for the UK means that the structural deficit could be lower than expected.

Andrew Goodwin, senior economist at Oxford Economics, said: "Oxford Economics analysis suggests that the economy has a significantly larger amount of spare capacity than the OBR estimates which, in turn, suggests that the medicine of austerity could end up being applied in a dose higher than the patient actually needs."

The IFS concluded in its "Green Budget" report that Osborne's plans to spend a further £6 billion a year in spending commitments after 2015 would suggest further spending cuts would need to be made elsewhere.

If the chancellor keeps protecting the NHS, foreign aid and schools budgets through to 2018-2019, the IFS estimate that the other "unprotected" departments would be set for over 30% budget cuts. Across government, the departments would suffer budget cuts of 17.2% on average.

The government would also need to find a further £4.2 billion if Osborne decides to extend the freeze on fuel duty beyond the next election and up to 2018-2019, the IFS said.