Philip Hammond has said he is "confident there is light at the end of the tunnel" as he faces demands from Labour to announce an easing of austerity in his upcoming Spring Statement.
The Chancellor said the economy is at a "turning point" after data suggested productivity may be increasing, while Government forecasts predict a sustained fall in debt.
The upbeat assessment comes after shadow chancellor John McDonnell urged the Government to "wake up to the scale of suffering that austerity is inflicting on our communities".
He said the Conservatives seemed "absolutely blind" to the "pain and misery" caused by cuts to public spending which were first announced in 2010.
Writing in The Sun on Sunday, Mr Hammond acknowledged it had been "a long road".
"Now, thanks to the hard work of people like you, we are at a turning point," he said.
"Over the past two quarters we have seen the first signs that productivity growth -- the key to higher wages -- may be increasing.
"This year we are forecast to see the beginning of the first sustained fall in debt for a generation.
"It has been a long road, and there is still work to be done, but I am confident there is light at the end of the tunnel."
Mr Hammond said the country was at a "pivotal moment" as it prepared to leave the EU, while technological advances will pose challenges and provide opportunities for the country's workforce.
The Chancellor is expected to maintain his optimistic tone when he delivers his Spring Statement to the Commons on Tuesday.
However it is anticipated that the address to MPs will be limited to forecasts, rather than revealing any changes to policy.
Mr Hammond has previously said that he wants to reserve major announcements for the main Budget in November.
Speaking in London on Friday, Mr McDonnell said public services had been left understaffed and "stretched to breaking point" by spending cuts.
"This is a government still committed to the austerity spending cuts the Tories first announced in June 2010," he said.
"They seem absolutely blind to the economic evidence and the pain and misery they have caused."