* UK announces sharp upgrades to growth forecasts
* Says budget deficit will be wiped out by 2018/19
* Labour says Britons not benefiting from better economy
By David Milliken and William Schomberg
LONDON, Dec 5 (Reuters) - Finance minister George Osbornecelebrated a sharp turnaround in Britain's economy asvindication of his austerity push on Thursday, but said he wouldnot relax his grip on public spending in the years ahead.
Obsorne used a big jump in forecasts for growth in 2013 and2014 to taunt the opposition Labour party ahead of a generalelection in 17 months' time.
"We have held our nerve while those - who predicted therewould be no growth until we turned the spending taps back on -have been proved comprehensively wrong," he told parliament ashe gave a half-yearly update on the government's economic plans.
As recently as April, Osborne was under heavy criticism fromLabour for not doing more to spur a flat-lining economy. TheInternational Monetary Fund also urged him to speed up spending.
But a sudden pickup in growth has made Britain one of thefastest-growing advanced economies - the euro zone is set togrow at less than half the rate of Britain next year, accordingto European Central Bank projections released on Thursday.
It also means the government's goal of fixing the publicfinances is no longer slipping further out of reach and Osborne announced the first big fall in projected publicborrowing since the coalition took power in 2010.
Labour is now campaigning on what it calls a cost of livingcrisis, saying low wage growth and surging fuel and transportbills have left many Britons worse off, something Osborne triedto deflect with a freeze on fuel duty and other measures.
Borrowing - excluding the effect of cash transfers fromRoyal Mail and the Bank of England - was revised down to 6.8percent of gross domestic product in the current fiscal year,from March's estimate of 7.5 percent.
The deficit, by that measure, would be wiped out by the2018/19 fiscal year.
But, based on another measure of Britain's over-spendingwhich Osborne originally used as a target for his austerityprogramme, the deficit was due to take a year longer thanpreviously forecast to return to surplus.
Looking further ahead, Osborne said he would send toparliament next year a fiscal charter to bind future governmentsto bring down public debt, something that could pressure Labourto back the policy or risk accusations of irresponsibility.
GROWTH FORECASTS RAISED
Osborne said forecasts from Britain's budget watchdog, theOffice for Budget Responsibility (OBR), showed economic growthin 2013 was expected to be 1.4 percent, rising to 2.4 percent in2014.
That represented a big upgrade from the OBR's predictions inMarch of growth of 0.6 percent and 1.8 percent respectively.
However, the economy remains smaller than before thefinancial crisis and Osborne stressed that Britain faced morespending cuts in the years ahead to rebalance its publicfinances and restore the economy to health.
"Britain's economic plan is working. But the job is notdone," he said, noting the structural budget deficit - which isnot helped by a pickup in the economy - was not expected to fallany faster than previously forecast.
The updated economic forecasts were mostly in line witheconomists' expectations. Capital Economics said they werecautious and if growth was stronger, Osborne might be able toannounce some modest tax cuts before the next election.
Alan Clarke at Scotiabank said an earlier and lower peak in the national debt than previously forecast could see Britainregain triple-A credit ratings. Standard & Poor's is the onlyone of the three main agencies to still have Britain on the toprating after Moody's and Fitch took the UK down a notch thisyear.
Moody's, however, said later on Thursday that Britain's"ongoing fiscal challenges" meant it was not thinking aboutupgrading the rating any time soon.
The economic rebound and government measures to promoteproperty purchases have helped push up property prices. In areflection of concerns about a price bubble in London's propertymarket, Osborne announced the introduction of capital gains taxfor foreigners who own a British property which is not theirprimary residence.
Labour, which is ahead in the polls, reiterated the party'scriticism that while economic data is improving many Britons arenot benefiting.
"For all their complacent boasts, after three damaging andwasted years, for most people ... there is still no recovery atall," Ed Balls, Labour's top economics official, toldparliament.
"The whole country will have seen today that for all hisboasts and utterly breathtaking complacency, the Chancellor(finance minister George Osborne) is in complete denial."
The government sought to show voters it can help offset theimpact of stubborn inflation which has eaten into their wagesfor several years.
Osborne said more children would get free school meals andmarried couples would get tax breaks. Businesses would benefitfrom a cap on property tax increases and companies hiring peopleunder the age of 21 would no longer have to pay payroll taxes.
- Politics & Government
- Budget, Tax & Economy
- George Osborne