Darling to deliver Budget on March 24

Financial markets hope he will flesh out his plans to halve the deficit -- currently pencilled in at over 12 percent of GDP -- by 2014, but the government is worried that tightening policy too soon risks derailing the recovery.

In a speech hosted by Thomson Reuters on Wednesday, Prime Minister Gordon Brown said the government remained committed to reducing the deficit, but also stressed restoring growth is a priority.

"Cut now at home -- fail to protect our frontline services, fail to invest in the growth sectors of the future -- and we could push our economy back into recession," Brown said.

His comments came after official data showed manufacturing output unexpectedly fell at its sharpest monthly pace in 5 months in January, highlighting the fragility of Britain's recovery from the deepest downturn in its post-war history.

The government has passed legislation obliging it to halve the deficit over four years and reduce the size of the structural deficit by two-thirds over the same period.

The opposition Conservatives, meanwhile, have said they would bring the deficit down quicker, but have not spelled out exactly how and opinion polls now suggest that neither of the main parties will win a convincing majority in parliament.

That is making investors nervous that a future administration will have trouble pushing through tough spending cuts and has revived concerns about the nation's triple-A sovereign rating, putting pressure on the pound.

Brown said on Wednesday he believed Britain would maintain its coveted top credit rating and announced a pay freeze for top civil servants and military officers to help tame spending.

(Reporting by Fiona Shaikh; editing by Stephen Nisbet)