Spending more to rejuvenate the UK's fortunes is "patently ludicrous" and would set the recovery back, the Chancellor added. Addressing the CBI annual dinner at Grosvenor House, he also rubbished Labour calls for a temporary VAT cut, claiming the figures do not "stack up".
"My message to the business community and to the country is this: we have a clear economic plan," he said. "Our plan is working. Now is not the time to lose our nerve. Let's not listen to those who would take us back to square one. Let's carry on doing what is right for Britain, let's see this through."
Last month International Monetary Fund chief economist Olivier Blanchard warned that Mr Osborne was "playing with fire" if he continued with his current deficit reduction plan and the organisation is set to issue the government with advice following extensive talks in London this month.
But the Chancellor said the Government would not deviate from its "credible" approach, which has seen the deficit cut by a third. He warned easing fiscal policy to fuel growth would be "mistaken" and suggested any sense the UK was going to "print its way out of trouble" would spark a "catastrophic" response in the markets that would hit families in their pockets.
He added: "If financial markets sensed that the UK was going to print its way out of trouble, the response in the markets would be catastrophic. The people who would pay the price are the millions employed by the companies represented in this room and the millions of families who would face higher mortgage rates."
The Chancellor's speech came after Sir Mervyn King gave a glimmer of hope in his last economic forecast as governor of the Bank of England. In the quarterly inflation report he said growth will be a "little stronger" than previously hoped, setting the UK on course for a "modest and sustained" recovery. The economy should expand by 0.5% in the second quarter of this year, he said, while inflation will not surge as much as feared.
The Chancellor criticised calls for increased spending and took a swipe at Labour, telling the CBI: "Those who advocate more spending have had to admit that it would increase borrowing. "But, they say, it would lead to lower borrowing after that. We would borrow more to borrow less, they say. Once you unpack the assumptions required for this to be true, this argument becomes patently ludicrous."
Shadow Treasury minister Chris Leslie said: "George Osborne is in total denial about the failure of his economic plan. He has now delivered the slowest recovery for 100 years, falling living standards and rising unemployment. And borrowing is set to be £245 billion more than planned to pay for the costs of this economic failure. If we're to have a strong and sustained recovery, and catch up all the ground we have lost over the last three years, we need urgent action to kickstart our economy now and reforms to strengthen it for the long term.