LONDON (Bloomberg) - Bank of England Governor Mervyn King said Prime Minister Gordon Brown's government should be careful about how much more money it pours into the UK economy and mindful about keeping spending under control.

Chancellor of the Exchequer Alistair Darling has said he is considering further measures to stimulate the economy in his annual budget statement due on April 22. In November, he ordered £20 billion ($29 billion) in tax cuts and spending increases and forecast a deficit of eight percent of gross domestic product.

"Given how big these deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits," Mr. King told lawmakers in Parliament in London yesterday, adding that the Treasury could enact "targeted and selected measures".

The comments raise questions on Brown's reputation for handling the economy both as prime minister since 2007 and as Tony Blair's finance minister for a decade before that. They also undercut the government's push for leaders of the Group of 20 nations to agree a new package of spending when they meet in London on April 2.

The European Commission along with opposition lawmakers and business lobby groups in the UK questioned Brown's judgment in borrowing to finance his economic recover plans.

"This is a defining moment in the political argument on the recession," said George Osborne, a Conservative lawmaker who speaks on finance. Brown "is trying to drum up a consensus at home and abroad for a second round of fiscal stimulus" and is "increasingly isolated at home and abroad".

Conservatives say Brown is to blame for the market turmoil because he designed the UK's system of financial regulation in 1997. Brown has pledged £50 billion to recapitalise Royal Bank of Scotland Group plc. and Lloyds Banking Group plc. and hundreds of billions of pounds more support for banks.

Testifying to members of the House of Lords, the central bank governor also said he expressed "some reservations" to Brown when he switched the inflation target in 2003 and made known concerns about surging house prices and a credit boom before the subprime mortgage market collapsed in 2007.

"We spoke about it, but the fact is the Bank of England had no policy instrument other than words," Mr. King told the lords Economic Affairs Committee. "You have to be very careful about what you say for fear of being accused of exaggerating or of being a scaremonger."

The comments on the deficit constrain Brown's ability to use government cash to pull the economy out of its worst recession since at least 1980. The Labour government's popularity is trailing the Conservatives, and Brown must call an election no later than the middle of 2010.

Brown said governments around the world should do "whatever it takes" to revive growth. Speaking to European Union (EU) lawmakers at the start of a five-day tour to gather support from G-20 nations for his economic revival plan, Brown suggested more spending would be good for the world economy.

"We are seeing the biggest cut in interest rates the world has ever seen and seeing implemented the biggest ever fiscal stimulus the world has ever agreed," Brown told members of the European Parliament today in Strasbourg, France.

The European Commission forecast Britain's deficit would touch 9.6 percent of GDP in the year ending March 2010 and set a deadline of bringing the gap back to the three percent EU limit by March 2014. It urged Britain to step up the pace of fiscal consolidation from next year.

The Conservatives and Confederation of British Industry, which represents businesses, have counseled Mr. Darling against a big new stimulus in his budget. The International Monetary Fund says Britain will have a deficit of 11 percent of GDP in 2010, the highest in the Group of 20, as the recession hammers company profits and drives up unemployment.

Mr. King's critique went beyond the state of the public finances. Speaking to the Lords, he said he was concerned about Brown's decision in 2003 to target inflation based on the Consumer Price Index instead of the Retail Price Index.

The new measure does not include housing costs, removing the issue from the forefront of interest rate policy debate at the Bank of England right before prices peaked. Home values tripled in the decade after the Labour government took office in 1997. They have fallen 20.6 percent from an average of £186,044 in October 2007, Nationwide Building Society says.

"It would have been preferable if we had stayed with an index where house prices were included," Mr. King said.

For his part, Mr. Darling has suggested he may hold back on spending. Speaking as G-20 finance ministers met on March 14, the chancellor said he already has plowed "a lot" of money into the economy and that "automatic stabilizers" that boost jobless benefits and cut the Treasury's tax take will have a big impact both on the economy and the deficit.

"While Gordon Brown has been pushing more fiscal activism both here and abroad, Darling has been holding the line," Malcolm Barr, an economist at JPMorgan Chase & Co., wrote in a note to clients. "King's comments add to the pressure to keep further discretionary actions relatively small."

John McFall, a Labour lawmaker who leads the Treasury Committee, said Darling may focus budget measures on helping savers whose income has been eroded by falling interest rates.

"We have to have interest rates at almost zero at the moment to try and stimulate demand," Mr. McFall told BBC television. "I would hope that the government would look at some schemes" to help people who depend on bank deposits.

Mr. King said the central bank could do more to bolster growth by boosting money supply.

He also said that the government was right to run deficits at a time when the economy was so weak and that policy makers would have to tolerate big shortfalls for the next two to three years.

"We can do more monetary easing," Mr. King said. "If necessary monetary policy should bear the brunt of dealing with the ups and downs in the economy. We have put in an enormous amount of stimulus."