The "wrong kind of inflation" will mean the government has to borrow significantly more over the medium term than planned, George Osborne will be forced to admit in the Budget.
A deterioration in the medium-term government borrowing numbers – in spite of a lower deficit than forecast in November – will cast a shadow over Osborne’s deficit reduction programme, the Financial Times reports.
Britons are suffering their biggest drop in living standards since the 1970s, according to a new report by the Institute for Fiscal Studies (IFS).
The study flags up the fragility of the UK's economy as it struggles out of the deepest recession since the 1930s.
Inflation is normally thought to boost public finances because rapid earnings and prices growth raises revenues from income tax, national insurance and value added tax without similar effects on public spending.
But in the Budget forecasts, released on Wednesday, higher inflation, which is hitting household incomes, is set also to squeeze government finances.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till