The UK economy is set to avoid a recession and inflation is on track to fall to 2.9% by the end of the year, according to the fiscal watchdog.

The Office for Budget Responsibility (OBR) has forecast an “improved outlook” for public finances, the Chancellor told MPs in the House of Commons during his Budget announcement.

It comes after the OBR originally laid out a bleak outlook in November, which predicted ballooning debt and shrinking GDP in 2023.

However, falling wholesale energy prices and cooling inflation has helped to boost the position of the Treasury in recent months.

On Wednesday, the OBR indicated that inflation would reach 2.9% by the final quarter of 2023.

It comes after rocketing energy prices saw inflation strike 10.7% in the final quarter of last year.

Original forecasts had also indicated the economy would enter recession in 2022 and shrink by 1.4% in 2023.

However, the fresh projections show that the economy is set to avoid a technical recession – which means two consecutive quarters of decline – and shrink by 0.2% this year as whole.

It is then due to grow by 1.8% in 2024 and 2.5% in the following year before growth cools.

Chancellor Jeremy Hunt said: “Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I take, the UK will not now enter a technical recession this year.

“They forecast we will meet the Prime Minister’s priorities to halve inflation, reduce debt and get the economy growing.”