Gordon Brown has signalled that he is ready to increase government borrowing to maintain public spending as the world economy falters.

During a speech to the CBI annual conference the chancellor insisted that higher borrowing is preferable to "short-termist" tax increases or spending cuts.

"Some have suggested that the right approach in the face of slower growth is that, instead of holding firm to our long term course, we should cut spending and borrowing irrespective of the stages of the economic cycle and the need for public investment in transport and our infrastructure - even when inflation is low and the underlying fiscal position is sound," he said.

"In my view the consequences of such a short termist and deflationary approach would be higher unemployment, depressed demand, and lower growth with, as in the past, capital spending on infrastructure the first casualty of cuts."

The move follows a downturn in the global economy, which Brown described as the "first simultaneous world slowdown for almost thirty years".

"Not just because of the tragedy of September 11th, but with events unfolding in Iraq, high oil prices, the problems with the IT sector, continuing concerns on corporate standards, the danger of contagion from further financial instability in emerging markets, and still major current account imbalances among the major economies, the uncertainties facing the world economy are unprecedented in number and more widespread than at any time in recent economic history," said the chancellor.

"I know the difficulties you as manufacturers and service companies trading in a world economy face when, in addition to exchange rate pressures, twenty of the world's biggest economies have been in recession this year or last year."

The chancellor faced a tough reception from Britain's bosses on Monday.

The Confederation of British Industry's conference will warn Gordon Brown that red tape, tax increases and soaring public sector pay could damage the economy.

CBI chief Digby Jones warned Brown not to bite the hand of "macro-economic stability".

"Don't hurt the one thing you have delivered for business and for the economy more than anything, which is macro-economic stability," he said.

"I have to say business would say well done and that means don't give in to fire fighters. Don't tinker with the things that can hurt it."

"And if we have one more piece of employment legislation which gives trade unions even more ability to stay rigid in the labour market not flexible, if we have any more business taxation than we have now Gordon Brown you will start hurting the very thing that you have delivered."

Labour's business critics told a line-up of cabinet ministers that Britain's prosperity is under threat from high taxes and over-regulation.

Bosses have expressed concerned over the impact of next year's National Insurance increase and changes to employment law.

Flexible employment and low taxes are the "two jewels in the crown" of the UK economy, Jones told Brown.

"They are the two things that are under threat from this government now," he said on Sunday.

"The whole flexible Labour market is so important to stay competitive in a fiercely competitive global world.

"And business taxation is going up alarmingly."

The Conservatives argue that the business love affair with Labour is over.

The shadow chancellor, Michael Howard, has called on Brown to signal an easing up on Britain's bosses.

"It is clear that business is getting fed up with Labour. Labour's burdens on business are damaging the economy," he said.

"Easing those burdens should be a priority for Gordon Brown when he produces his pre-Budget report later this week."

"Business is getting fed up with Labour; fed up with Labour's new business taxes, fed up with Labour's regulations and fed up with Labour's broken promises."