HM Inspector of Constabulary, Zoe Billingham, said: "HMIC is pleased to see that forces have risen to the financial challenge and are generally balancing their books.
"They are making the difficult decisions that are needed to make savings, while taking steps to protect, although not preserve, frontline services. However, the full effects of these choices are in many cases still to be felt."
Overall the 43 police forces in England and Wales are under pressure to save £2.4billion between 2010 and 2015 in order to cope with the effects of a 20 per cent cut in central Government funding and the rising costs of pay and fuel, according to the HMIC report published on Monday.
All managed to balance their books in the first year of the plan but there is still a £302m "funding gap" to be filled, £233m of it down to the Metropolitan Police.
Some forces are relying on using their reserves to make savings, which could leave them in a "potentially precarious position" if, as "likely", the demand for austerity continues after the election.
The vast majority of police spending is on pay and so most savings are being made through job cuts.
In total the workforce will fall by 32,400 posts (13 per cent), including 15,000 sworn officers and 15,6000 support staff.
By 2015 the number of frontline officers - those who come into contact with the public either on the beat or on investigations - will fall by 5,800 to reach 84,500 (a 6 per cent drop).
But the number of non-frontline officers - in support roles - will fall by 7,600 to reach 10,300 (42 per cent), so the proportion on the frontline will actually increase.
These figures do not even include the Met, the country's biggest force, or Cheshire, so the actual numbers will be higher.
And the report also warns there may have to be "further workforce reductions" to fill the funding gap.
HMIC warns that forces must plan their job cuts carefully, because fast reductions will damage "workforce morale" while using the "relatively blunt instrument" of making officers with over 30 years' service redundant would lead to the "loss of key skills".
To mitigate the losses, forces plan to increase the number of volunteer special constables by 58 per cent by 2015, to reach 24,500, and also to encourage volunteer support staff.
Analysis by HMIC suggests at on Saturday nights, one in 10 of visible officers or Police Community Support Officers is a special constable.
The watchdog noted that police stations and front desks are an "iconic symbol" of British policing and a reassuring presence to the public, even if they are not open.
But to save money, some 264 counters (22 per cent) are to be closed between 2010 and 2015 along with 179 police stations (14 per cent).
Instead, 137 new "shared locations" will open, in which police services can be accessed from inside supermarkets, council offices and even libraries.
HMIC added that it has concerns about the ability of three forces - the Met, Lincolnshire and Devon and Cornwall - to manage the financial and workforce demands of budget cuts as well as keeping up performance and public satisfaction.
"There is a risk that three forces may not be able to provide a sufficiently efficient or effective service for the public in the future", the inspectors said.
Asked about the troubles at Scotland Yard, Sir Denis O'Connor, the Chief Inspector of Constabulary, said: "There has been a pause because of all the changes at the top of the Met, executive and politically, and the Olympics.
"That combination has paused things, so we've got £233 million to find, they make up the bulk of the outstanding money to be found nationally.
"The second thing is they've had some performance issues.
"Crime has been bubbling up and down for them and their satisfaction levels are not satisfactory, they're low.
"So they've got limited timescales and a lot to do."
Paul McKeever, Chairman of the Police Federation of England and Wales, which represents the rank and file, added: "The report reveals the smokescreen that some forces are saying the frontline is not affected by moving officers from important functions elsewhere.
"Whichever way you cut it, the resilience of the police service to be able to react to whatever is thrown at it is being threatened."
