Alistair Darling today confirmed the Government's much-vaunted fiscal rules were "under review". But the Chancellor insisted no decision had been taken on whether to loosen them to allow more borrowing.
With official figures today showing net borrowing hit a record £24.4 billion in the first quarter of the financial year, economists said ministers were faced with a choice between raising tax, breaking the rules or relaxing them.
Conservatives said it was "the end of the Brown era of economics".
Prime Minister Gordon Brown staked his credibility on the rules in 1997, but was ditching them when economic difficulties put them to the test, said shadow chancellor George Osborne.
Today's figures from the Office for National Statistics showed net debt at 38.3% of GDP - up one percentage point on a year ago - bringing it perilously close to the 40% limit imposed by the Government's sustainable investment rule.
The ratio increases to 44.2% when the impact of nationalised lender Northern Rock and Bank of England lending is included in the figures.
Analysts have also questioned whether Mr Darling will be able to meet his golden rule, which requires the Government to only borrow to invest over the economic cycle.
Quarterly net borrowing was £9.6 billion higher than the equivalent period last year after a figure of £9.2 billion was recorded for last month - the highest for June since monthly records began in 1993. With previous figures being revised higher, the quarterly figure was the highest since the war.
Reports in the Financial Times suggesting Treasury officials were drafting a looser framework were dismissed as "pure speculation" by the Treasury, which said that the fiscal rules for the next economic cycle will be set out at the end of the current cycle.
Asked whether the rules would be changed, Mr Darling told the BBC: "I have made no decision.
"I said 12 months ago... that we always keep these things under review, so there is nothing new there."
Mr Darling appeared to hint at a rethink by pointing out that Government borrowing levels in Britain were currently lower than in most other major economies, including France, Germany, Italy and the US.
And he added: "The key position is this: of course it is right - especially now when our economy along with every other economy in the world is being hit by two shocks; the credit crunch and very high oil prices - that we allow borrowing to support the economy. But what is critical is that you do have rules to ensure the public finances are sustainable in the medium term.
"That is why rules are so important now and why they will remain important in the future."
Mr Osborne said: "The Brown era of economics is over.
"He staked his credibility on the fiscal rules. They were part of the arrangement he announced a decade ago to constrain government and make sure that money was put aside in the good years to prepare for the bad years.
"Now we've reached those bad years, the public finances are in a mess, and the rules are being ditched. It's like giving the prisoner the keys to their own prison cell."
Liberal Democrat Treasury spokesman Vince Cable said the rules should be be put in the hands of an independent body to stop the Government "fiddling" the figures.
"The fiscal rules have no credibility when the Government keeps fiddling or changing them," he said.
"It's completely lacking credibility for the Treasury to be marking its own exam papers and setting its own questions. What we need is an Ofsted for the economy."
Philip Shaw, chief economist at Investec Securities, described June's public finance figures as "absolutely horrific" and said they provided the context to rumours of a looming loosening of the fiscal rules.
"Faced with a choice of tightening fiscal policy, breaking both the rules or changing them, the Government seems to be opting for the third choice," said Mr Shaw.
"Altering the rules just before they are about to be broken does not show a great sense of timing, but on the upside the UK might emerge with a more credible and robust fiscal framework."
Robert Chote, director of the Institute for Fiscal Studies, said: "The Government would perhaps have been better off re-thinking how these rules should look rather before the point at which it looks as though you are just about to break them.
"That doesn't do credibility any good in its own right."
David Kern, economic adviser to the British Chambers of Commerce, said: "The news that the Treasury will most likely alter its fiscal rules later in the year is not surprising.
"There can be little doubt that breaching the fiscal rules could undermine credibility and confidence in the short term. Nevertheless, we believe such a breach would be justified if it helps to alleviate a severe economic downturn.
"At the very least, the automatic stabilisers, which increase automatically the size of the budget deficit when the economy slows, must be allowed to do their job and mitigate the downturn.
"Tax increases or spending cuts would be totally unacceptable when growth is seriously threatened."Reuse content