Chancellor Philip Hammond says spending on new homes and transport will be his priority rather than following his predecessor George Osborne’s aim to balance the books by 2020.
He told the BBC the Brexit vote had caused uncertainty and the “pragmatic” response was to support growth now.
But the deficit was still “eye-wateringly large” and would need to be tackled “in due course”.
The BBC’s political editor Laura Kuenssberg said it was a “big change”.
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She said that while Mr Hammond had already dropped his predecessor’s target of eliminating the deficit by 2019-2020, what was particularly striking was his refusal to set a new timetable for bring the budget into surplus.
In his conference speech later, Mr Hammond will say Mr Osborne’s deficit reduction policies “were the right ones for that time”, adding: “But when times change, we must change with them.”
Mr Hammond will say the government will still “restore fiscal discipline” but in a “pragmatic way that reflects the new circumstances we face”, promising further details in November’s Autumn Statement.
As part of “a new plan for the new circumstances Britain faces” after the Brexit vote, there will be greater scope for investment to boost the economy, including extra borrowing of £2bn to speed up the construction of new homes.
Asked whether this marked the end of the “age of austerity”, Mr Hammond told BBC Radio 4’s Today the annual budget deficit was still “eye-wateringly large” and that a framework was still required to get the public finances into the black “in due course”.
But while the UK economy appeared to be in robust shape, he said there was “anecdotal evidence” of greater caution since the Brexit vote – with some firms putting off investment decisions – and it was the government’s duty to help prepare the economy for any potential softening and to boost long-term productivity.
“As we go into a period where inevitably there will be more uncertainty in the economy, we need the space to be able to support the economy through that period,” he said. “If we don’t do something, if we don’t intervene to counteract that effect, in time it would have an impact on jobs and growth.”
He rejected claims that he was now “more Balls than Osborne” – a reference to former shadow chancellor Ed Balls who called for more public investment before the 2015 election – saying that while Labour were making “ludicrous” promises on spending – his plan would be “careful and measured”.
“I hope I am sounding like a Conservative pragmatist faced with the challenge of uncertainty in the economy,” he said.
He added: “There is a distinction in my mind between investing in the things that will make Britain’s economy more efficient in the future, make transport systems work better, communications systems work better and simply spending more on our day-to-day process of government,”
“We need to keep the lid on day-to-day spending, we need to make government more streamlined and efficient but I do think there is a case that we should look at very carefully for targeted, high-value investment in our economic infrastructure.”
The economy takes centre stage on Monday with Mr Hammond, who was appointed by Mrs May to replace Mr Osborne when she became prime minister, delivering his speech to delegates in Birmingham and other ministers setting out plans to boost jobs and infrastructure.
Alongside Communities Secretary Sajid Javid, Mr Hammond will set out new measures aimed at getting 40,000 new homes built by 2020.
The government will borrow £2bn to support the “Accelerated Construction” scheme, which aims to get houses built on publicly-owned “brownfield” land available for swift development. Mr Hammond and Mr Javid say the cash will encourage new developers to build up to 15,000 homes in this Parliament.
There will also be a £3bn Home Building Fund to provide loans to stimulate projects, which the government said would build more than 25,000 homes by 2020, with a long-term goal to build more than 200,000.
Mr Hammond’s speech comes after Mrs May addressed the Tory conference on Sunday for the first time as prime minister, with the first day of the gathering focusing on the 23 June vote to leave the EU.
She announced she would formally trigger Brexit using Article 50 of the Lisbon Treaty by the end of March 2017, paving the way for the UK to be outside the EU by the summer of 2019. She also announced a “Great Repeal Bill” would be included in the next Queen’s Speech to remove the European Communities Act 1972 from the statute book and that the UK would become an “independent, sovereign” country.
Asked if he was worried about the repercussions should the UK leave the EU’s single market, Mr Hammond said he was focused on getting the best deal for British businesses and workers and although he was not one of those ministers focused specifically on Brexit – he said the Treasury would be “right at the heart” of discussions.