Increased borrowing gives Rishi Sunak an extra £6bn to bail out households Business

“While the Chancellor is expected to receive good news on the current financial year, the outlook for the next twelve months will be very different.”

Mr Sunak has signaled he wants to use his fiscal space to cut taxes ahead of the next election, but the worsening cost of living crisis has added to calls for immediate action.

The Bank of England warned last Thursday that British households could face an even bigger second wave of inflation in the fall if energy prices remain high.

He expects the inflation rate to top 8% in the spring when energy bills soar with inflation already at its highest level in 30 years.

Meanwhile, Mr Sunak could also be forced to increase defense spending as the West increases military budgets after Russia invades Ukraine.

Samuel Tombs, chief UK economist at Pantheon Macro, warned that the surge in inflation hitting households “will cause considerable damage to public finances”.

However, he added: “His room for maneuver could be greater now, given that inflation is not expected to remain high indefinitely, while the revenue forecast will rise permanently if the OBR judges that the tax ratio on GDP has increased.”

After huge borrowing to support worker incomes and the economy during the pandemic, the deficit has narrowed significantly in 2021/22.

Borrowing was £138.5bn in the first 10 months of the current financial year, more than half the levels seen in the same period a year earlier.

The deficit was £18billion lower than the OBR had forecast in October.

Nevertheless, total public debt has soared to 95% of GDP, reaching the highest level since the early 1960s.