The shadow chancellor has claimed that the UK's macroeconomic policy has been too narrowly focused on controlling inflation while being unable to control asset and credit 'bubbles'.

"The UK system was not designed for a situation in which excess domestic demand was combined with downwards pressure on inflation from elsewhere," George Osborne stated.

Speaking at the Harvard Business School, Mr Osborne also called for central banks to be given greater powers to vary capital requirements imposed on lenders so as to prevent a recurrence of last year's credit crunch, which is still impacting upon global markets.

Only by allowing policymakers at the banks to vary the capital requirements that limit financial institutions' lending practices according to the different stages of the credit cycle will governments be able to stop "the good times getting out of control", he argued.

The comments come soon after Charles Goodhart, professor at the London School of Economics and former chief economist at the Bank of England, told the Financial Times that constraining lending during credit booms and giving lenders greater flexibility during times of difficulty could prevent the economy fluctuating through periods of boom or bust.