George Osborne was today accused by Britain's new Nobel Prize winning economist of having "exaggerated" the risk of a Greek-style debt crisis.
Professor Christopher Pissarides said that the prospects of a sovereign debt crisis hitting Britain - used by the Chancellor to justify his spending cuts - were "minimal".
In an article for the Sunday Mirror, he warned that Mr Osborne's swingeing cuts package, announced last week in the Commons, was taking "unnecessary risks" with the economy.
The Chancellor has said drastic action to tackle the deficit was necessary to avoid a Greek-style collapse in investor confidence, leaving Britain facing punitive interest rates to finance its borrowing.
However Prof Pissarides said he believed that the Chancellor had over-stated the dangers.
"It is important to avoid this 'sovereign risk'. But in my view Britain is a long way from such a threat, and the Chancellor has exaggerated the sovereign risks that are threatening the country," he said.
He said that Mr Osborne should have been more concerned about the current weakness of the UK economy.
"Unemployment is high and job vacancies few. By taking the action that the Chancellor outlined in his statement, this situation might well become worse," he said.
"These risks were not necessary at this point. He could have outlined a clear deficit-reduction plan over the next five years, postponing more of the cuts, until recovery became less fragile.
"The 'sovereign risk' would have been minimal."
His comments were echoed by Labour leaders Ed Miliband who accused the Government of driving through big cuts for ideological reasons.
"Of course the deficit is high and needs to be brought down. Our approach, based on halving it over four years, would bring it down every year," he said in an article for The Observer.
"But the idea that we are about to go bankrupt is pure political spin to justify a familiar ideological project of a smaller state."
In his latest podcast on the No 10 website, David Cameron acknowledged that the country faced a "hard road", but insisted that the measures to tackle the deficit were essential.
"I don't underestimate how difficult this will be. But we are doing what we are doing because it is the right thing to do - right by our economy, right for our country," he said.
"We had to bring some responsibility back to public spending because if we didn't, Britain was looking down the barrel of economic ruin."
The Prime Minister said he was committed to ensuring the cuts were administered in a way that was "fair" while at the same time focusing what resources were available on boosting entrepreneurship and wealth creation.
"We didn't just do the right thing, we did it the right way. We've gone about these spending cuts in a way that is fair and in a way that promotes economic growth and new jobs," he said.
"Fair because if you look at the figures, you'll see the highest earners aren't just paying more in cash, they are paying more as a percentage of their income. As we promised, those with broader shoulders are bearing a greater burden."
His comments reflect the acute sensitivity within the coalition to accusations that Mr Osborne's spending review, announced on Wednesday, would hit the poor hardest.
Analysis by the respected Institute for Fiscal Studies found that - apart from the richest 2%, who would be caught by tax rises announced under Labour - the burden of cuts would fall disproportionately on the poorest.