In their latest set of forecasts, the OBR upgraded expectations for UK growth and the pace of deficit reduction. However, their assumptions on GDP growth and the size of the output gap still leave room for upside surprise, assuming the UK economy can grow for a time above its long term trend, which is a typical pattern in a recovery, as spare capacity is used up.
The size of the output gap, or amount of spare capacity in the economy, is difficult to measure with any high level of confidence.
Nevertheless, unemployment and underemployment levels are still elevated, while significant wage pressures are absent.
Many people in part-time work would prefer to work full time, while some in full-time work would prefer to work longer hours.
So, it is quite possible there is more spare capacity than the headline unemployment rate suggests and the OBR have assumed.
This would provide the Chancellor with more upside surprises next year, just ahead of the 2015 election.
