LONDON (Reuters) - British finance minister Alistair Darling said governments must adapt their economic policies to tackle the fallout from the financial crisis, as speculation grows Britain is preparing to abandon its fiscal rules limiting borrowing.

"It is natural that the conduct of policy should evolve. Just as markets change, so should policy," Darling said in extracts from a speech that he delivered in London yesterday evening.

With Britain sliding towards its first recession since the early 1990s, both Darling and Prime Minister Gordon Brown have said it is right to let government borrowing rise during an economic downturn to help businesses and households.

That language has led many economists to believe the ruling Labour Party is preparing markets for a change — or abandonment — of its self-imposed fiscal rules that limit government borrowing to 40 percent of gross domestic product.

Some leading analysts, however, have warned against trying to use government spending to stave off a recession, and the Bank of England has also said any damage to the credibility of fiscal policy could make its monetary policy job harder.

"It is natural that the conduct of policy should evolve. Just as markets change, so should policy," Darling said in the speech.

"Three weeks ago, we worked with other countries to put in place a plan to stabilise the banking system. And today we need the same determination to support the wider economy, to ensure that fiscal policy supports monetary policy, here and across the world, in these exceptional circumstances."

British public sector net borrowing hit £37.6 billion in the six months to September, the highest half-year total since records began in 1946 and compared with £21.5 billion in the same period a year ago.

That has left Darling's full-year borrowing forecast of £43 billion looking very optimistic given the likelihood that an economic downturn will mean lower tax receipts and higher social security spending.

Britain's economy shrank a bigger-than-expected 0.5 percent in the three months to September and analysts expect a further, and perhaps sharper, contraction in the fourth quarter. Such a contraction would satisfy a widely used definition of recession: two successive quarters of negative growth.

Excluding the nationalisation of failed mortgage lender Northern Rock, Britain's net debt stood at 37.9 percent of GDP last month versus government forecasts of 38.5 percent at the end of the fiscal year.

The government will also have to account for the part-nationalisation of lender Bradford & Bingley and its large financial rescue package, even if they do not show up in headline borrowing measures.

"Today, governments all over the world are using approaches that had until recently been consigned to policy-making history," Darling said. "Tonight I want to set out how governments should respond to this new challenge, which I believe demands a new response — both at home and abroad."