Bond investors would not punish Britain for veering off its path of fiscal consolidation if that helped shore up growth, opposition Labour Party business spokesman Chuka Umunna told Reuters on Thursday.
With just days before finance minister George Osborne delivers a budget update to parliament, Britain's Conservative-led government is coming under growing pressure to ease up on austerity measures to prevent the flagging economy from falling back into recession.
The coalition government has staked its reputation on eliminating a budget deficit that was a record 11 percent when it came to power last year, by implementing the deepest spending cuts in a generation.
It has rejected calls to soften its stance, saying that could shake investors' faith in its commitment to cut government borrowing and put it in the same league as highly indebted euro zone nations like Greece, Italy and Spain, whose borrowing costs are soaring.
Labour's Umunna, a former member of the influential cross-party Treasury Committee, disagrees.
The markets would punish you if you changed course purely for political reasons and that would be understandable, he told Reuters in an interview. But the market is unlikely to take a dim view of what you do if you seek to change course for economic reasons.
Interest rates on UK government bonds have tumbled to record lows in recent weeks. On Thursday the rate on 10-year gilts briefly dipped below that of its German counterpart for the first time in more than 2-1/2 years as contagion fears about the euro zone debt crisis spread to the region's largest economy.
Britain's economy has flatlined for most of the last year, and although data on Thursday confirmed 0.5 percent growth in the July-September quarter, that was largely the result of government spending.
Economists say worse is yet to come and the Bank of England forecasts growth of less than 1 percent for most of 2012.
Umunna, who has been touted as a possible future leader of the Labour party, says Osborne's austerity plan is pushing Britain into a vicious cycle of weak growth and more debt.
I wouldn't say it's going to depress growth, it already is. The worrying thing is that a lot of the cuts haven't come through yet.
He says the government is irresponsible to claim that British government bonds, or gilts, could suffer the same pressures as their euro zone counterparts if it doesn't stick to its deficit plans.
I'm not saying there are no risks involved for the UK. But what I am saying is we have more flexibility, and we're in a different situation to the likes of Greece, Spain or Italy.
Most analysts say UK government bonds are an attractive investment because Britain issues in its own currency, has an independent central bank to set monetary policy and an average debt maturity that is one of the longest of the G7 nations.
The Bank of England's quantitative easing programme to buy gilts, which it ramped up by 75 billion pounds in October to 275 billion pounds, has also provided huge support to gilts.
Nonetheless, city economists caution that Britain has no leeway to change course on its debt reduction plan.
There is virtually zero room for any relaxation in the austerity programme -- which would be suicide in our view, said Alan Clarke, economist at Scotia Capital.
(Reporting by Fiona Shaikh)