The CBI, on the eve of its national conference, said that Gordon Brown should increase borrowing, rather than scale down the public spending plans he announced in the summer.
Kate Barker, CBI Chief Economic Advisor, said: "Provided the economic slowdown does not turn into a recession, the consequent rise in public borrowing should not require a spending plan review. Indeed a panic reviewcould be economically damaging."
Adair Turner, CBI Director General, said a budget deficit that ran to as much as 2 per cent of gross domestic product (GDP) was "perfectly OK".
The CBI endorsement came as Mr Brown was finalising details of his pre- Budget statement, which he will make to the House of Commons tomorrow.
Even though weaker-than-expected economic growth means the government will receive less money in tax and pay out more in benefits, the Chancellor is expected to say that he will be able to meet his spending commitments without breaking his "golden rule" - that is, only borrow to invest.
This assertion was directly contradicted yesterday by the National Institute of Economic and Social Research (NIESR), one of the country's leading think tanks. NIESR predicted that public borrowing will exceed net investment by a total of pounds 23bn over the life of the current parliament.
NIESR, which also predicted that growth will slow to 1.1 per cent next year, said: "This means that the golden rule of matching investment with borrowing will be broken."
Meanwhile, a survey released by the CBI yesterday highlighted the dangers of industry talking itself into recession. It found that while only 47 per cent of firms were gloomy about the prospects for their own business next year, 83 per cent were pessimistic about the outlook for the economy as a whole. As a result, just over half of firms surveyed backed the CBI decision to call for a 0.5 percentage point cut in interest rates at this week's meeting of the Bank of England's monetary policy committee.
Mr Turner said: "The fact that so many more firms are concerned about the overall economy highlights the danger of talking too much about recession. We must stop a UK recession from becoming a self-fulfilling prophecy."
A separate study released today by the Institute of Management reveals that confidence among business leaders has fallen to its lowest level for two years. The Institute's confidence indicator sunk to 24 per cent in the third quarter, down from 33 per cent in quarter two.