Rachel Reeves will seek to fund around £20 billion a year of extra investment in Britain with increased borrowing, it was reported on Thursday.
The Chancellor is set to tear up her fiscal rules, to allow her to borrow more long term, while also imposing stricter limits on in year spending.
She was due to make the change to find around £20 billion for major transport and other infrastructure projects, according to The Financial Times, to try to boost the UK’s economic growth which has been miserly in recent years.
But the Chancellor has been criticised for “gloomy” talk as activity across the UK’s private sector slipped to an 11-month low.
The downbeat news came as the Chancellor was finalising her Budget, due to be delivered on October 30.
The S&P Global flash UK composite purchasing managers’ index (PMI) reported a reading of 51.7 in October, down from 52.6 in September.
The preliminary data came in lower than City expectations, with economists having pencilled in a reading of 52.6 for the latest survey.
Any score below 50 indicates that activity is contracting, while any score above means it is growing.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Business activity growth has slumped to its lowest for nearly a year in October as gloomy Government rhetoric and uncertainty ahead of the Budget has dampened business confidence and spending.
“Companies await clarity on Government policy, with conflicts in the Middle East and Ukraine, as well as the US elections, adding to the nervousness about the economic outlook.”
Sir Keir Starmer and Ms Reeves have struck a pessimistic tone around the Budget in recent months, warning of “tough decisions”, which is feared to have hit confidence in some parts of the economy.
More recently, they have sought to strike a slightly more upbeat note.
The Chancellor was widely expected in the Budget to change Britain’s debt rules to open the door for the Government to borrow and invest more to drive economic growth.
She is thought to be seeking to raise up to £40 billion from tax hikes and spending cuts, with the majority set to come from tax rises many of which will hit London hard.
They could include a hike in National Insurance for employers, higher capital gains tax and inheritance tax, and changes to stamp duty, and possibly to fuel duty.
Ms Reeves argues the tax raid is needed to plug an alleged £22 billion black hole in the public finances which she says the Tories left the new Government, a claim that they deny.
Ahead of a meeting of the International Monetary Fund in Washington, the Chancellor promised that her Budget will be an “economic reset” for the UK, and it would invest in the “foundations of future growth”.
She said: “A Britain built on the rock of economic stability is a Britain that is a strong and credible international partner.
"I'll be in Washington to tell the world that our upcoming Budget will be a reset for our economy as we invest in the foundations of future growth.
"It's from this solid base that we will be able to best represent British interests and show leadership on the major issues like the conflicts in the Middle East and Ukraine."
But shadow Treasury minister Gareth Davies said: “Before the election Rachel Reeves promised that she would not 'fiddle' the fiscal rules, and now it seems she is going to do exactly that. Remarkably she is announcing this not to Parliament, but to the IMF in advance of the Budget.
“This is already having real world effects, with borrowing costs rising. This uncertainty over additional borrowing risks interest rates staying higher and for longer. It's families up and down the country who would pay the price.”
It said UK gross domestic product is due to grow by 1.1%, a significant upgrade after predicting 0.7% growth in July.
