A severe revision to UK growth forecasts will drastically cut Phillip Hammond's wiggle-room in the upcoming Budget.

A dramatic over-estimation of the UK's productivity levels over the past seven years by fiscal watchdog, the Office of Budget Responsibility (OBR), means the Chancellor of the Exchequer's room for spending could be reduced by as much as two-thirds.

The Chancellor had previously set aside £26bn of headroom to cushion shocks to the economy in the wake of the Brexit vote, but this will be severely curtailed by the OBR's new, more negative outlook for the UK.

Growing pressures on Mr Hammond to lift the levels of public sector pay, and to address the shortage of housing stock, a promise announced in Theresa May's speech at the Conservative party conference this week, will have to be balanced against this new finding, due to be released by the OBR on Tuesday, October 10.

A recent internal Treasury document, which has been seen by the Financial Times, suggested that the £26bn headroom would be reduced to a margin of "single digits of billions" as a result of the latest revisions.

This is because Mr Hammond's rule on spending demands that he reduce the deficit to less than 2pc of national income by 2020-21, so a lower level of growth will limit his ability to borrow or spend from tax receipts.