BRITAIN'S business leaders are putting off vital investment because of their fears over the continued recession, which most now believe will continue for the rest of 2012.

The gloomy views contained in a poll of more than 1200 members of the Institute of Directors (IoD), published today, come as George Osborne's core economic policy suffered yet another blow, with official figures showing a shock rise in Britain's borrowing last month.

Labour said the Chancellor's deficit-reduction plan was now thoroughly discredited, while the SNP insisted Mr Osborne's credibility was in tatters.

The IoD added pressure on the Treasury chief by pointing out how its poll showed not a single Coalition policy was seen to be working and called on the Chancellor to take "some bold steps" to boost business.

Mr Osborne is coming under increasing pressure to change tack and start spending money on infrastructure projects such as a massive housebuilding programme but he has to date been adamant he will stick to his course, which he believes has market credibility and, crucially, is keeping interest rates down.

Last night, a Comres poll showed public trust in the Chancellor is at an all-time low.

Just 16% of the population said they trusted him to see the country through the current economic slump; 62% said they did not. This is the lowest trust score for Mr Osborne since polling began in October 2010 when 32% said they trusted him and 37% said they did not.

Meanwhile, asked if gross domestic product growth this year would be higher or lower than last year, respondents in the IoD survey said they expected it to be lower by a margin of 52% to 19%.

Some 65% said there was a low or zero probability of the UK emerging from recession in 2012. However, 52% said they expected the second half of the year to mark some improvement.

The survey showed 44% of business leaders had postponed at least one investment or employment decision in 2012 because of economic uncertainties.

Questioned on a range of UK Government policies, the respondents showed a negative indicator on every single one.

When asked if a policy had been effective or ineffective, the balance showed on: Reducing tax complexity -62%, reducing business red tape -60% and simplifying employment law -51%.

"Business is battening down the hatches in the expectation the recession will continue for the rest of the year," said Graeme Leach, the IoD's chief economist.

"That is bad news for the economy at large because decisions to invest money or take on more staff are being postponed until things look up."

He added: "Low confidence leads to delayed decisions and delayed decisions further undermine economic confidence; it's a vicious cycle."

Yesterday, public sector net borrowing – excluding financial interventions such as bank bailouts – was £600 million in July compared to a surplus of £2.8 billion in the same month last year, countering expectations in the City of London of a surplus this time round of £2.5bn.

The gloom was deepened because July is normally a strong month for tax receipts yet they fell 0.8% driven by a drop in corporation tax while UK Government spending rose by 5.1%.

This means borrowing so far this year, excluding a one-off boost after assets from the Royal Mail's pension fund were transferred to the Treasury, is £44.9bn – £9.3bn higher than a year ago.

Last night, Rachel Reeves, for Labour, said the latest borrowing figures were a "damning indictment" of the Chancellor's approach.

"His failed plan has delivered the exact opposite: A double-dip recession, which is leading to soaring borrowing. What more evidence does the Government need their plan has failed and they need to change course?" she added.

Stewart Hosie, for the SNP, said: "It is clear to everyone except Mr Osborne his austerity agenda has failed but the Chancellor continues to bury his head in the sand and ignore the chorus of calls for capital investment to boost growth."

In response, Treasury Minister Chloe Smith brushed aside the criticism, saying: "What these figures really show is the importance of sticking to the plan that has won Britain international credibility."

If the borrowing figures were not bad enough, the UK's attempt at recovery took another blow when a survey showed 36% of manufacturers were reporting a deterioration in their order books for August.