Osborne also said his party -- tipped to win an election due by mid-2010 -- would not adopt a more interventionist approach to monetary policy but said the Bank of England's quantitative easing programme was "partly masking" the appetite for gilts.

The Conservatives have made cutting record government borrowing a priority, saying Labour's plans to halve the deficit -- set to hit more than 12 percent of GDP this year -- are inadequate.

But data on Friday showing Britain's economy unexpectedly shrank in the third quarter -- marking the longest recession on record -- have raised doubts about the wisdom of swift cuts.

"I have not set a target date yet because that is something that is an absolutely key judgement for a new government," Osborne told Reuters television in an interview. "I need to know what the current figures are before I make what will clearly be a key judgement."

"However, I am already clear -- as is almost every independent observer and British business organisation -- that the government's plan, even if they could achieve it, is not enough."

Osborne's comments follow a speech at Thomson Reuters' London headquarters in which he appeared to ease back on previously tougher rhetoric. He said he would tailor deficit cuts in line with an economic recovery and that his party had never proposed fiscal tightening this year.

MARKET CONFIDENCE

Last month, Conservative leader David Cameron argued that the longer the deficit was left untouched, the greater the risk to recovery.

But analysts say it will get harder to sell quick and tough action if recession drags on and unemployment is still rising during the election campaign.

Osborne said it was important to tackle the budget deficit to avoid damaging market confidence and endangering Britain's top-notch credit rating.

"You want to start getting the deficit down because you don't want to test the market appetite for gilts," he said. "That should not be something you want to put into doubt."

He said a Conservative government would not adopt a more interventionist approach than Labour to the independent Bank of England, despite comments from Cameron last month that the Bank needed to stop printing money soon.

"I still believe in the principle behind the arrangements which is that the monetary policy committee is independent," Osborne said.

"I want to work in coordination with monetary policy. I wouldn't in any way interfere with the Bank of England's independence."

However, he said the BoE's 175 billion pound asset purchase scheme -- mainly targeting British government bonds -- was making it hard to gauge the actual market appetite for gilts.

(Editing by Andy Bruce)