On Wednesday the Chancellor will deliver his sixth and final Budget of this Parliament. In many respects this is the pre-election Budget the Chancellor always hoped to be able to deliver.

Developments since the Autumn Statement in December have been overwhelmingly positive. The oil price has fallen, government bond yields have edged lower and prospects for growth in the UK and euro area have improved.

On Wednesday the Chancellor is likely to present a picture of good growth and rising incomes.

The UK’s budget deficit, one of the largest in the industrialised world, precludes any big pre-election give-aways. But stronger than expected growth means that forecasts for the deficit are likely to be nudged down and spending on priority areas nudged up.

UK activity is accelerating faster than expected in December. At that time the independent Office of Budget Responsibility (OBR) forecast the UK economy would grow by 2.4% in 2015. We expect the OBR to raise this forecast to the 2.8% mark, the fastest rate of growth in nine years.

A lower oil price has contributed to a sharp fall in UK inflation. In January the annual inflation rate stood at 0.3%, the lowest level in more than a quarter of a century. The OBR seems likely to halve its current forecast for inflation this year to 0.6%.

After months of disappointment the public finances are showing signs of improvement. Lower inflation will reduce the cost of benefits linked to CPI inflation and cut government interest payments based on the old RPI index. With consumer incomes and spending on the rise, VAT receipts should get a fillip.

A slightly better outlook for public borrowing does not alter the fact that much of the pain of deficit reduction lies ahead. In Mr Osborne’s first Budget in 2010 he forecast that the deficit would fall to £37 billion in 2014/15. The actual outturn seems likely to be at least twice as much.

Planned reductions in public spending are on track. Slow progress in cutting the deficit is entirely due to weak tax receipts. Sluggish GDP growth, weakness in wages and the Coalition’s decision to raise the tax free personal allowance to £10,000 have eaten into receipts.

Better growth and higher earnings should help tax receipts from here. The question for the next Parliament is whether large, planned cuts in public spending can be delivered.

The Autumn Statement implied that roughly two thirds of the required cuts to spending on public services will need to take effect in the next Parliament. This would significantly over-achieve on the Conservative’s target for eliminating the public sector deficit by 2019-20. Instead of returning the budget to a small surplus the official forecast has the public finances going from a deficit of around £90 billion this year to a surplus of £23 billion by 2019/20.

Mr Osborne could judge that now is the time to ease up on austerity. He could scale back the planned budget surplus for 2019/20, freeing up to £23 billion extra for spending on key public services.

Mr Osborne would still meet his deficit reduction target and could counter Labour attacks on “Conservative austerity” by offering higher spending on key public services. Some would argue that changing tack now would recognise that the scale of deficit reduction laid out in December’s Autumn Statement was unrealistically demanding.

Mr Osborne will want to avoid muddying his core message of prudence and long term stability. Big tax cuts or spending increases would, to put it mildly, sit uneasily with the message that deficit reduction is paramount.

Whatever happens in the Budget, Labour will go into the General Election able to promise more public expenditure than the Conservatives. Labour’s rules for running the public finances allow it to borrow to invest – a less demanding target than the Conservative plan to balance the budget in the medium term. This leeway would allow Labour to spend around £27 billion a year more than the Conservatives.

The Budget forecasts are likely to show that, in terms of growth and incomes, better times lie ahead. But whichever party or parties take office after the election have further heavy work ahead to narrow the public sector deficit.