But they will struggle to meet their long-term target of halving child poverty by 2010, a study for the Joseph Rowntree Foundation says.
A combination of favourable economic conditions and government action means ministers "could just succeed" in their aim to reduce child poverty by a quarter by next year.
Previous research suggested that next year's target was likely to be missed.
Cutting child poverty was one of the key targets Labour set itself during its first term in office. It has promised to eradicate child poverty "within a generation".
Reducing poverty is seen by many educationists as vital to raising school standards, easing the burden on teachers and reducing Britain's long tail of underachievement.
International studies show that the UK has one of the strongest links between economic well-being and educational success.
Researchers at Cambridge university and the London School of Economics found that the number of children in poor households - defined as those with an income of less than 60 per cent of the national median - has been reduced by a combination of rising employment and government initiatives.
The introduction of the national minimum wage, tax credits for working families and above-inflation increases in some benefits have all contributed to a fall in child poverty, the study found.
Holly Sutherland, co-author of the report, said that the Government would need to substantially increase redistribution of wealth towards the poorest families if it is to meet its long-term target.
"Reducing child poverty by a quarter would be a significant achievement but our study also shows the challenge the Government has set itself in tackling poverty.
"Rising employment has made a real contribution to reducing poverty in the past six years but there are limits to how much further employment measures can be expected to reduce poverty."
Poverty in Britain: The impact of government policy since 1997 by Holly Sutherland, Tom Sefton and David Piachaud is available at www.jrf.org.uk