George Osborne
The Chancellor George Osborne (Reuters)

The Centre for Economics and Business Research has revealed that the UK economic recovery could pave the way for £7bn in tax cuts.

According to CEBR economists, the Chancellor could slash taxes in the lead up to the 2015 general election as the improvement in the economy has been better than expected.

"The main constraint on the Chancellor introducing crowd-pleasing measures is the likely reaction of the financial markets," added the CEBR.

"They will generally penalise such measures by forcing up bond yields and weakening the pound."

In 2013, the UK outperformed most European economies, and employment recently rose to its highest level in five years.

On 8 April, International Monetary Fund (IMF) said Britain will be the fastest growing Western economy during 2014.

The IMF upgraded its forecast for UK growth to 2.9% in 2014, up from its previous estimate of 2.4% in the biggest upward revision of any major economy.

And the IMF said that it may be underestimating the UK's economic performance, meaning growth in 2014 could be even higher.

The CEBR said the economic backdrop for UK exports would be likely to become more supportive than at any time in the past eight years.

Meanwhile, HSBC announced in its Business of Growth report that it plans to help SMEs; 2014 will mark a turning point for British companies as investment forecast growth outstrips pre-recessionary business behaviour, the bank said.