British chancellor George Osborne has declared that "Britain's economic plan is working" as he revealed an Autumn Statement containing bold steps to "remove that cap on aspiration".

But as he outlined plans to extend the retirement age for millions, he warned that the “job is not yet done”.

He warned of “more difficult decisions” and acknowledged that the effects of the economic crash on family budgets were still being felt.

But he pledged: “The hard work of the British people is paying off and we will not squander their efforts.”

Mr Osborne said the economy was on track to grow by 1.4 per cent this year - more than double the 0.6 per cent pencilled in at the time of the March budget. Growth in 2014, he said, was expected to be 2.4 per cent, up from the previous estimate of 1.8 pe rcent.

He revealed that the recession had been even deeper than feared — with GDP down by 7.2 per cent rather than 6.3 per cent — the equivalent of £3,000 per household and one of the sharpest falls globally. But he said that UK plc was now growing faster than any other advanced economy.

Mr Osborne said the improving economic outlook meant borrowing would be £111 billion this year — £9 billion less than predicted at the time of the budget in March. Overall the office for budget responsibility is now forecasting that borrowing over the next five years would be £73 billion less than previously thought with a “small cash surplus” by 2018/2019.

Mr Osborne announced a new cap from next year on welfare spending but said that state pensions would be excluded. He also promised a further £3 billion in savings in the public sector but said the NHS would be excluded.

Detailing the changes to the retirement age, he confirmed that it would rise to 68 in the mid 2030s and 69 in the late 2040s.

The announcement has already drawn criticism with unions claiming that Britons were being expected to work “until they drop”.

Separately, the Bank of England held its key interest rate at a record low in line with its forward guidance, as Mr Osborne said the economy is strengthening. The bank’s monetary policy committee led by Governor Mark Carney kept its benchmark rate at 0.5 per cent, according to a statement in London today.

PA