George Osborne has signalled he is ready to drop his target to balance the books by the end of the decade as he pointed to severe economic uncertainty in the aftermath of the EU referendum.
Speaking in Manchester, the chancellor said he needed to be "realistic" about the chances of meeting his self-imposed target to eradicate the government's deficit.
He said: "The government must provide fiscal credibility, continuing to be tough on the deficit while being realistic about achieving a surplus by the end of the decade."
Before the referendum Osborne indicated that if the UK voted to leave he would swiftly have to raise taxes or cut spending in an emergency Budget. Earlier this week he abandoned those plans and confirmed he would not be standing in the Conservative leadership race to succeed David Cameron. The chancellor had long been the favourite to take the keys to Number 10 when Cameron stepped down.
His budget surplus target was under question before the referendum, with the Office for Budget Responsibility (OBR) giving him only slightly better than a 50-50 chance of meeting it. Figures for the first few months of the current financial year have also disappointed and since the vote economists have warned the annual deficit could climb from £75bn a year to £100bn.
Clear signs of economic shock in aftermath of Leave vote. Will require supreme national effort but we can come through this challenge— George Osborne (@George_Osborne) July 1, 2016
The admission that the government may not meet the target comes as the governor of the Bank of England, Mark Carney, warned of prolonged uncertainty and prepared to slash interest rates this summer. Theresa May also signalled she would ditch the surplus targets and ease up on austerity when she launched her leadership bid in Westminster yesterday.
Osborne insisted his move was not a u-turn, saying his "fiscal rules" included provisions that allow the government to carry on spending more than it brings in during exceptional times.
The chancellor, who is reportedly backing Michael Gove in the Conservative leadership race and could potentially stay on if he wins, also called for quick negotiations with Europe. This could put him at odds with the justice secretary and scupper any Leave-Remain unity message they might attempt to run on, since Gove has said he will not trigger Article 50 this year.