By Jason Theodorou

The head of the government's new fiscal watchdog has told Chancellor George Osborne that he will step down at the end of June, when his three-month contract expires. Sir Alan Budd, chairman of the Office for Budget Responsibility (OBR), was expected to stay on in his position.

Sir Alan has not yet reported to the Treasury on his recommendations for the future operation of the OBR, and he will be leaving only a few months before the fiscal body examines the government's Comprehensive Spending Review.

This will leave the Office for Budget Responsibility without a chairman, before it has been established as a permanent legal body. It comes as a blow to Chancellor George Osborne, who established the Office to bring greater credibility to the coalition government's financial decisions and projections.

Sir Alan is expected to return to the private sector. The OBR as yet does not have a viable replacement for him, which may mean it will need to continue without a chairman.

Business economist Dominic Swords said: 'I think this is a staggering piece of news, which will create a lot of unease in the marketplace'.

'There have been some whispers over the last week of discomfort between Sir Alan and the Treasury - a growing story concerning whether the cuts were too deep, and assumptions the Budget had on private sector growth, have created a storm in the markets'.

Mr. Swords argued that Sir. Alan's departure was bad news for Chancellor George Osborne. He said: 'This will be egg on the face of the Chancellor, after setting up an independent body that at the first sign of stress has actually fallen apart'.

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