George Osborne has ditched his cherished plan to run an absolute budget surplus by 2019-20, as the storm clouds hanging over the British economy in the wake of the last week’s fateful referendum result closed in further.

The economy is widely expected to slow down rapidly in the wake of last week’s vote for Brexit, and possibly slide into another recession, something that would undermine tax revenues and make it impossible for the Government to balance the books in four years’ time in the absence of further spending cuts or tax rises. This prompted the Chancellor yesterday to jettison the deficit reduction goal, which he had made his personal totem.

The reversal puts greater pressure on the five candidates in the Conservative leadership race, the winner of which will have the job of negotiating Britain's exit from the EU.

Ms May continues to command the majority of support from Tory MPs, with almost 100 now backing her bid to replace David Cameron as Prime Minister. However, Ms Leadsom said the next party leader should be someone who supported the Leave campaign ahead of the referendum. Ms May campaigned to remain in the EU.

Ms May said that she would not stick to Mr Osborne's controversial target, which was widely criticised by economists even before the referendum result for being economically incoherent and potentially damaging.

Speaking at the Greater Manchester Chamber of Commerce, the Chancellor said:"As the governor of the Bank of England said yesterday, the referendum result is as expected likely to lead to a significant negative shock for the British economy."

The favourites in the Tory leadership race Show all 5 1 /5 The favourites in the Tory leadership race The favourites in the Tory leadership race Theresa May The longest-serving Home Secretary in 100 years took a back seat in the referendum campaign. While backing Remain, she did not hit the campaign trail and delivered only a handful of speeches and interviews, and was critical of many aspects of the EU, particularly the European Convention on Human Rights. Hedging her bets allows her to now emerge as a ‘unity’ candidate, and she is said to have been building up her back-room staff in preparation for a leadership bid. She has the significant advantage of having served in one of the great offices of state, in a steady and competent manner that has won her many admirers within party and the civil service. At a time of great instability, it may be that she is viewed as steady hand on the tiller. Mrs May does however, lack the ‘star quality’ of a Boris Johnson and party members may doubt her ability to connect with ordinary voters PA The favourites in the Tory leadership race Michael Gove The Justice Secretary may be able to set himself up as ‘the thinking Tory’s Brexit candidate’. Made an enormous political and personal decision to back Leave, taking on his old friend David Cameron. He performed well during the TV debates, and will be an admired figure among Eurosceptic Conservatives. Along with Johnson, he will be hindered by the fact that he led a very divisive campaign, characterised by ‘blue-on-blue’ action. MPs may also judge that he lacks Boris Johnson’s wider appeal with the electorate. Possibly more likely that he will settle for being his new bosom buddy Boris’s Chancellor Getty The favourites in the Tory leadership race Stephen Crabb Highly-rated Work and Pensions Secretary, raised on a council estate, so could reach out to non-traditional working class Tory voters Getty Images The favourites in the Tory leadership race Andrea Leadsom Minister of State for Energy at the Department of Energy and Climate Change is one of the most prominent figures in the Leave campaign, seen to have performed well in TV debates Rex Features The favourites in the Tory leadership race Liam Fox British Conservative MP and former Secretary of State for Defence, as sources said he will stand for the leadership of the Conservative Party AFP/Getty

"How we respond will determine the impact on people’s jobs and on economic growth. The Bank of England can support demand. The government must provide fiscal credibility, so we will continue to be tough on the deficit but we must be realistic about achieving a surplus by the end of this decade."

"That's exactly what our fiscal rules are designed for”.

In his March Budget Mr Osborne set out plans to run an absolute budget surplus of £10.4bn in 2019-20 as part of his updated fiscal mandate. To reach this he had enacted further sizeable cuts to public service spending and a host of stealth tax rises.

The fiscal mandate allowed the budget surplus target to be suspended if the UK's year on year growth rate, as forecast by the Office for Budget Responsibility (OBR), fell below 1 per cent. The OBR is scheduled to deliver its next round of forecasts in October - and is widely expected to slash its forecasts in line with most other economic organisations.

The Chancellor's words suggest that he expects the OBR's downgraded forecast to trigger the suspension of the rule.

A large number of economists had criticised the design of the Chancellor's fiscal mandate, which requires the Government to run an absolute budget surplus in 2019-20 and every year thereafter, because it did not carve out an allowance for state capital infrastructure spending, which enhances the economy's long-term productivity.

They argued that there was no economic justification for absolute budget surpluses (as opposed to surpluses on day-to-day or "current" government spending) and that the Chancellor's framework was liable to result in less capital infrastrucutre spending than the country needs.

During the referendum campaign Mr Osborne came in for ferocious criticsm from all sides for arguing that a Leave vote would be followed by an instant austerity budget to repair the economic damage.

Economists said such additional austerity would merely deepen any downturn, hitting tax revenues further and thus proving counterproductive in terms of repairing the public finances.

Pro-Leave politicians said the Chancellor was attempting to scare the public into casting a Remain vote, and 57 Conservative MPs said they would vote down any such "punishment budget" if enacted.