UK 2019/20 surplus forecast could be cut in Autumn statement, says CS

“The headline deficit numbers are expected to be broadly unchanged. The debate on tax credits implies that there is a chance that the Treasury reverses some of the tax credits cuts,” CS said in a note.

The bank said the statement would be dominated by the political furore around Osborne's original plan to cut £4bn from the welfare budget by reducing tax credits, despite Prime Minister David Cameron saying during the General Election campaign in May that they would not be touched.

The government was soundly defeated on the issue in the House of Lords in October, leaving Osborne's plans in tatters.

“In our view the Treasury is likely to reverse some of the tax credits cuts and find these savings elsewhere,” CS said.

It said the government could look at cuts in other benefits such as housing or universal credit, although these looked “politically difficult”, or cut public services further and raise taxes.

"Lower inflation and interest rate expectations compared to the summer are expected to generate £2bn of savings per year. The lower than expected cost of servicing debt means that the cuts required to reach the target can be reduced, giving the Treasury some headroom.”

“Public services outside the protected areas already need to be cut by £20bn in the Spending Review and reports show that spending on education and economic affairs is likely to reach record lows.”

The broker added that the reversal in tax credit cuts could be “somewhat mitigated by lower inflation and interest rate expectations”.

CS also forecast a £2bn cut to gilt sales in 2015/16, reducing total sales to £125.4bn.

“We think this reduction be implemented via a £1bn cut to the unallocated supplementary issuance programme, with the remainder cut by slightly reducing the average size of the remaining auctions,” it said.

Overall, the statement was “unlikely to change our outlook on UK growth or the pace of monetary policy normalization” CS said.