George Osborne has warned he may have to impose bigger than expected cuts to public spending towards the end of the current parliament as the “storm clouds” in the global economy hit economic growth.

In a move to prepare the ground for a sharp deterioration in the public finances in the budget next month, the chancellor said the recent fall in nominal GDP numbers showed the British economy was smaller than expected.

Osborne, who signalled that the cuts would come from efficiencies in government spending, also indicated that he might adopt a flexible approach to his target of delivering an overall budget surplus of £10.1bn by 2019-20.

The chancellor made clear that he might have to embark on a change of course in his budget on 16 March when he warned of global “storm clouds” in an interview with the BBC at a meeting of G20 finance ministers in Shanghai.

He said: “The storm clouds are clearly gathering in the world economy and that has a consequence for lots of countries including Britain. Now we are weathering it better than most, but we’ve just had confirmation that our own economy is not as big as we had hoped.

“So we may need to undertake further reductions in spending because this country can only afford what it can afford and we will address that in the budget, because I’m absolutely clear we’ve got to root our country in the principle that we must live within our means and we have economic security.”

John McDonnell, the shadow chancellor, said: “This is a total humiliation for floundering George Osborne. He has sneaked off to China to admit what Labour have been saying for months, that his recovery is built on sand. Far from paying our way, Osborne’s short-term economics means Britain is deeper and deeper in hock to the rest of the world.”

The chancellor spoke out after the latest nominal GDP numbers released by the Office for National Statistics showed that the cash size of the economy was 1% smaller than previously assessed. That represents a fall of £18bn.

The Office for Budget Responsibility (OBR) is widely expected to embark on a dramatic downwards revision of its growth targets at the time of the budget next month. This will raise questions about whether the chancellor will be able to meet his target of delivering an overall budget surplus of £10.1bn by 2019-20 in time for the next general election.

The OBR handed the chancellor a lifeline at the time of his autumn statement last November by saying that better than expected tax receipts and lower debt interest had improved the public finances to the tune of £27bn. This allowed Osborne to ease back on planned cuts to tax credits and to confirm that he would deliver a high surplus by the time of the election.

Osborne has yet to hear formally the OBR’s judgment ahead of his budget. But the slowing of economic growth and falling tax receipts means that the public finances will be distinctly less rosy.

It is understood that the chancellor will signal that the spending cuts, which will be relatively modest and will be drawn from efficiency savings, will be introduced towards the end of the current parliament. The chancellor told the BBC: “I’ll set out how, if we need to, we will reduce spending, but the first place I look is to further efficiency in government.

“There are always ways to make government better; always ways to make sure that the taxes people watching this pay, are better spent ... We’ve shown you can deliver more bang for your buck, frankly, and we can deliver value for money for the taxpayer while giving improved public services for people.”

The chancellor may also revise his budget surplus target. He is still committed to delivering an overall budget surplus but regards it as an insurance policy and a buffer against economic uncertainty. Osborne told the BBC: “We’ve taken judgments to get that budget surplus. Now, of course, as the global economy gets more difficult – and I think everyone accepts things have got particularly difficult since the start of the year – as more information comes in, we make sure that the essentials of our plan – which are Britain lives within its means, Britain can only spend what it can afford – those things are applied to our public expenditure.”

The chancellor added: “But people should know this of me: I will do what is required to keep our country safe and secure because in the end that’s what people’s livelihoods and jobs depend on.”

The chancellor has already shown a flexible approach on the surplus by delaying it by a year from the target he set out before the election.

In the March 2015 budget, he pledged to deliver a £5.2bn surplus by 2018-19, rising to £7bn in 2019-20. In the summer budget last July, the chancellor delayed the surplus until 2019-20 although he forecast it would be a higher rate of £10bn by then. In the autumn statement last November, he slightly increased the forecast for a surplus to £10.1bn.