George Osborne will be forced to reveal a downgraded growth forecast and a £8 billion borrowing overshoot in this week's Budget, it has been predicted.
The Ernst & Young ITEM Club said the Office for Budget Responsibility (OBR) was likely to slash its growth forecasts to just under 1% for 2013 from 1.2%, adding to pressure for bolder moves to kick-start the economy.
Weak income tax receipts, disappointing revenues from the sale of the 4G spectrum and a lower-than-expected boost from the Bank of England's asset purchase programme were also expected to see the OBR reveal that public borrowing has climbed to more than £88 billion this year, it added.
Senior economic adviser Andrew Goodwin said the forecasts would be politically "embarrassing" and said it was time for a "bold move" from the Chancellor.
The ITEM Club report is calling for spending on a £10 billion package of infrastructure projects in each of the next two years, even if this would require more borrowing.
A defiant Mr Osborne resisted pressure for a switch from his tight austerity measures yesterday as he warned there were "no easy answers" to the UK's economic woes.
But the Chancellor insisted that failing to tackle the country's debt and deficit problems could leave the UK on the brink of a crisis like that in Cyprus.
He said Wednesday's Budget would contain measures to "help those who aspire to work hard and get on" but would also set out the scale of further curbs on public spending from 2015.
Mr Osborne indicated there would be help with the cost of childcare and announced that a £72,000 cap on the amount people must pay for social care would be brought forward to 2016. The £144-a-week single state pension will also be introduced a year ahead of schedule in 2016.