The Office for Budget Responsibility, Britain's independent budget watchdog, said it narrowed its forecast for potential taxpayer losses by 3.3 billion pounds since November.

The government is expected to make a 100 million pound profit on its bailout of Lloyds Banking Group (>> Lloyds Banking Group PLC) as the lender is expected to return to the private sector this year. In November, the watchdog had forecast a 400 million pound loss.

Taxpayers face a 29.2 billion pound loss on the value of the government's shares in Royal Bank of Scotland (>> Royal Bank of Scotland Group plc). That compares with a previous forecast of a loss of more than 32.4 billion pounds in November.

(Reporting By Andrew MacAskill and Lawrence White, editing by Anjuli Davies)