UK could clear its deficit within five years as recovery gathers pace, predicts leading City think tank Government on course to record a surplus in 2017-18 as economic recovery pushes up tax receipts and public spending is reined in, according to report Would be first surplus since 2001 and represent remarkable turnaround after Labour's borrowing culminated in record shortfall of £158bn in 2010 George Osborne said the UK's 'hard work is paying off' and the country is now 'on the path to prosperity' Britain could be back in the black within the next five years as the budget deficit is finally eliminated, a leading City think tank predicted last night. The Government is on course to record a surplus in 2017-18 as the economic recovery pushes up tax receipts and public spending is reined in, according to the report. It would be the first surplus since 2001 and would represent a remarkable turnaround after Labour's borrowing culminated in a record shortfall of £158billion in 2010. The report, by the research group Capital Economics, will come as a boost to George Osborne ahead of his autumn statement next week. Simon Wells, chief UK economist at HSBC, said: "The economy has moved from a state of despair to repair." The Chancellor has said that the UK's "hard work is paying off" and the country is now "on the path to prosperity" following the biggest boom and bust in British history. But the Treasury last night played down talk of significant giveaways in the statement on December 5. "The message will be that there is still much more work to do," said a source close to the Chancellor. That doesn't sound like a giveaway to me. Capital Economics has for a long time been pessimistic about the outlook for the UK and as recently as June was expecting the economy to grow by just 0.2 per cent this year. It now expects growth of 1.5 per cent for 2013 and 2.5 per cent in 2014, and said the Government was set to borrow £164billion less than previously thought over the next five years. But analysts warned that although the deficit was falling, the national debt has soared from around £300billion at the turn of the century to more than £1.2trillion today - and is expected to top £1.6trillion in 2017. "Mr Osborne will present his fourth autumn statement against a dramatically improved economic backdrop," said Jonathan Loynes, chief European economist at Capital Economics. But the big picture is that the fiscal consolidation still has a long way to go. Mr Wells at HSBC said: "The stronger recovery means that the public finances look better. The Chancellor will argue that the policy of fiscal consolidation has been vindicated. But there is still much to do. The Bank of England (pictured) now expects the economy to grow by 1.6 per cent this year The Office for Budget Responsibility is expected to upgrade its growth forecasts and pencil in lower borrowing when it publishes its latest outlook alongside the statement. And the Bank of England now expects the economy to grow by 1.6 per cent this year and 2.8 per cent in 2014 - far more than the 0.6 per cent and 1.8 per cent forecast by the OBR in March. Stronger growth is expected to feed through to the public finances as receipts from VAT, income tax and stamp duty rise, and spending on out-of-work benefits falls.